Los Angeles Business Journal: Options Available for Those Who Start Saving at Age 50

My mailboxes, both e- and snail, bring me every turn of the demographic wheel. These days, I'm hearing from those of you who woke up at 50 and said, "Wow, I'm not 30 anymore."

You knew you weren't saving enough for the future. But that always seemed so far away.

There's an upside to hitting 50 with little or nothing in the bank. Your options clarify themselves. It gets hard not to save, because the danger eats at you. Even now, you can still shape the retirement you both desire and dread.

But how? Newsweek asked that question in a recent all-points bulletin to financial planners. "Tell us about your late bloomers," the magazine asked. Where do they go from here? Their general message came through loud and clear: Think about why you're in this bind. Sometimes it's bad luck. More often, you saved too little because you spent too much, says planner Mary Beauchamp of Norfolk, Va. To change the future, you have to change your habits and attitudes and, yes, spend less.

You can't rescue yourself by hurling all your money into stocks. Aggressive investing gives you a shot at higher returns, but at the risk of a large loss.

"Just because you have greater need doesn't mean you put more of your money on a blackjack table," says planner Gary Schatsky of Objectiveadvice.com in New York City.

Your problem is insufficient money. Why would you risk losing half of the small amount you have?

What's more, late savers haven't had much stock market experience. They're more apt to make mistakes and panic when the market drops.

"At 50-plus, poor performance can be psychologically devastating," says planner Karl Graf of Wayne, N.J.

Instead, you should go for a plain-vanilla system: Have money deducted automatically from your pay and invested in diversified mutual funds. For people in their 50s, says planner Thomas Rogers in Portland, Maine, stocks typically shouldn't exceed 50 percent to 75 percent of assets.

There's only one way to make up for lost time. Save more aggressively, rather than invest more aggressively. "Save until it hurts," Graf says.

That means cut your spending, work longer or harder, work differently, return to paid work if you've been tending kids at home.

Right now, today, start putting 10 percent of your salary away -- maximizing your tax-deferred savings, then starting regular accounts.

Don't waste time nattering over your budget. Save the money, then fit your spending to what's left. Next year, try putting 20 percent away. (And by the way, don't sneak the extra spending onto your credit card. You also need to pay off debt.)

Late savers won't be able to spend as much in retirement as early savers do. Sorry, but that's a fact.

"So think about reducing your standard of living now, to prepare for a sustainable lifestyle," says planner Paul White of Manassas, Va.

Spending cuts give you more money to save and ease the transition to the years when you'll have to live on less.

Most of the planners opposed the idea of borrowing against your house to raise extra money to invest. There's no guarantee that your investments will do well, and a bigger mortgage adds to your stress.

Besides, the game may not be worth the candle. For example, say you take $30,000 out of your house, invest in stock-owning mutual funds and earn 2 percent more than your mortgage costs. Fifteen years later, you'd retire with an extra $10,376 -- small potatoes, considering the risk, says planner Dennis Hebert of Syracuse, N.Y.

Here's a better option to explore: Sell your house, move to something smaller and use the proceeds to invest.

You may have more resources than you think, says author Ellen Hoffman in a useful new book called "The Retirement Catch-Up Guide."

For example, find out if any of your past employers owe you a pension. Ask if there's a pension at your current job. (Many workers don't know). Find out the size of your likely Social Security benefits (www.ssa.gov or 800-772-1213). A few more years of work will bring those benefits up.

How much do you need to retire? There's no quick answer, but two Web sources can help. At Financialengines.com, you estimate how much you'll have to save. At Troweprice.com/ric, for people ready to retire, you decide what you can afford to withdraw from your savings each month.

Both sites help you adjust your assumptions to improve your chance of success.

Let Foundations Do Your Charity Work

For people who think they ought to contribute to charity, but don't have a charity in mind, American enterprise has the answer.

Donate to a charity that's in the business of investing. You get a full tax deduction now, even though your money isn't yet being used for any social purpose.

Instead, your donation goes into an investment account, which functions as your personal tax-exempt "foundation." You're offered various investment pools, made up of mutual funds.

whenever the spirit moves you, you can tell die managers of your foundation to distribute some or all of the money to a qualified nonprofit organization.

You don't get a second tax deduction when a distribution is made. The full tax advantage came up front. But, as with any gift given to charity, there's no tax on any of the capital gains.

You cannot ever change your mind and take your money back.

But you don't have to use it for a social purpose anytime soon. The program will push you to donate a minimal amount, if you've done nothing for seven years.

You also "recommend" grants to particular nonprofits. Officially, the program's directors decide.

But as long as you don't try, to give to specific individuals, private foundations or foreign charities, your recommendations will rule the day. To find a community foundation that serves your area.