Theo Brown knows he's running late. He got married at 37. The first of his two children was born when he was 40. And at 46, with a nest egg "as close to zero as you can be," he started saving for retirement.
That was 10 years ago. Back then, a financial adviser suggested that Brown set aside $1,100 a month because of his late start. "Outrageously high," recalls the self-employed consultant from Silver Spring who makes $75,000 in a good year. Instead, he's been saving less than a third of the recommended amount - about $4,000 a year.
To help make up for missing savings, Brown plans to work full-time until 70 - if health permits - and perhaps part-time after that.
"I'm concerned about it. I'm not worried about it," he says of retirement. "I know I started late. I was a typical baby boomer in a way. We had a whole myth that we will be young our whole lives and listen to rock 'n' roll."
For a thousand and one reasons, good and bad, many Americans such as Theo Brown are finding themselves entering late middle age having done little or nothing to prepare for retirement.
About 26 percent of households headed by a 45-to 54-year-old didn't have an individual retirement account or defined contribution plan, such as a 401(k), according to a 2001 survey by the Employee Benefit Research Institute.
"What's the use?" many ask. But, in fact, it's never too late, financial planners say.
"You just have to start, not agonize, and think, 'I need $1 million and I don't have it,' " says Cindy Hounsell, executive director of the Women's Institute for a Secure Retirement.
"It's not hopeless. The key is action," said Jordan Goodman, author of Everyone's Money Book on Retirement Planning, who calls the current crop of savings procrastinators the "catch-up generation."
Retirement specialists have created a number of inventive tools to help late starters calculate how much they need to save, how long they need to work and what kinds of lifestyle choices they face as they contemplate their senior years.
(A few basic tools are presented with this story.)
A good place to start is to figure how much you'll need annually in retirement, so you'll know how much to save.
Compromises are likely. Late starters might stay on the job longer or work part-time in retirement, experts say. They might have to forgo cruises and vacation homes for more modest lifestyles.
More income needed
Retirees had long been thought to need about 70 percent of their working income, but now recent retirees are believed to need 100 percent, if not more. Younger retirees travel, start hobbies and even launch businesses, experts explain.
"Retirement is no longer sitting in a rocking chair on a porch," said Stuart Ritter, a financial planner with T. Rowe Price Associates in Baltimore.
Jim Thompson, a financial planner with Harbour Financial Group in Boston, says he figures retirees will need 100 percent the first decade, 70 percent the next and 60 percent thereafter, providing they have health and long-term care insurance.
Individual needs may vary widely, experts warn. Workers need to look at their expenses today and how they will change in retirement, they say.
Will you take classes, travel or spend time at home with a hobby? Will you sell the house and move to a smaller place or to another state with lower taxes? Will you be financially responsible for another family member while retired? Will one spouse retire before the other? What would change if one spouse dies?
Tough to predict are health care costs, unless you are one of the fast-shrinking minority who will be covered under an employer's insurance plan. Medicare - the senior health program - takes care of the basics, but prescriptions drugs and long-term care can loom as expenses for those without supplemental insurance.
Also tough to estimate is how long you'll be retired. Many people are living longer than they expected, experts say.
A 50-year-old man has a life expectancy of another 28 years and a woman the same age an additional 32 years, according to the Centers for Disease Control and Prevention's analysis of 2000 data. That means half of those 50-year-olds will die before reaching that age, but half will live longer.
"The fastest-growing part of the population is 85 plus. Many, many people are reaching 100 now," Goodman noted.
Once savers have estimated how long they will live and how much income they'll need, the hard work of saving begins. Here are some moves late starters might consider:
Step up saving: One of the best ways to boost saving is through a 401(k) or similar plan at work. Money goes directly from paychecks into the plan, so savers don't miss it. Savers pay regular income tax on the money later when it is withdrawn.
Sometimes, employers will match part of workers' contributions to such plans. Workers should contribute at least enough to win that free match, experts agree.
This year, workers can contribute up to $12,000 in a 401(k), federal rules say. That increases $1,000 each year until 2006, when the limit reaches $15,000.
With late starters in mind, Congress changed the law to permit workers who are 50 and older to make extra contributions to 401(k)s and similar plans. This year, it's an extra $2,000. That goes up each year until 2006, when these workers can put in an additional $5,000, for a total of $20,000.
If savers have more cash to salt away, they might consider investing in a tax-deferred individual retirement account (IRA).
This year and next, savers can contribute up to $3,000 in an IRA. The annual limit increases after that and hits $5,000 in 2008. Older workers can contribute an extra $500 a year through 2005, and an additional $1,000 beginning 2006.
Two options available, depending on income:
A Roth IRA, where money goes in after taxes have been paid on it but withdrawals in retirement are tax-free.
A traditional tax-deductible IRA, where contributions are deducted on tax returns but regular income tax must be paid on withdrawals.
Which is better? T. Rowe Price offers a calculator at www.troweprice.com to help savers make a comparison based on their income taxes.
Such savings could be relatively painless if the money is diverted when another burden - like college tuition or mortgage payments - is lifted.
"If expenses drop away, keep paying the same amount to yourself," Goodman said.
It helps, too, to divert money automatically from a paycheck or bank account into savings, experts say.
Brown said that's helped him. "Unless you have it taken right out of your paycheck ... you can always find something to spend it on," he says.
Work longer: For many, the answer to a nest egg shortfall will be to keep working full-time or to gradually cut back on their work schedule, experts say. Others might moonlight or turn a hobby into a money-making venture.
Staying on the job can have a big impact on retirement income because there's more time to save and invest and fewer years to finance, Ritter says.
Adjust lifestyle: Another option is to trim your retirement needs by choosing a simpler lifestyle.
"For people who are late savers, it's really important to analyze how you can downsize and still have a nice life," said Ellen Hoffman, author of The Retirement Catch-Up Guide. "What are the things you can live without?"
Late savers shouldn't wait to live more cheaply, Hoffman added. Cutting costs now could build savings quicker. For example, by selling a large house and moving to a smaller place ahead of schedule, money from the sale and the savings on maintenance and property taxes can be invested for retirement, she said.
Delay benefits: Don't take Social Security benefits at the earliest possible age, 62, because you'll end up with reduced benefits, experts advise. By waiting until at least full retirement age, which is 66 for older boomers, the delay can make a big difference on annual income, they said.
For example, a 50-year-old today earning $50,000 would receive $13,296 a year by taking benefits at 62, $18,276 by waiting until 66 and $24,504 at 70.
Revisit plans: At the very least, you should review finances and retirement projections annually to check progress and see if you're still on target.
"You're doing an analysis today of what you think you will need when you retire. If you stop with that analysis and don't revisit it until your retirement, it will be wrong," said Michael Beriss, a senior financial adviser with American Express in Bethesda.
Strategies for retirement
Do the math. Figure out how much money you'll need when you retire.
Step up savings. Start contributing more or create additional saving plans.
Work longer. Put off that retirement party or gradually cut back on work.
Adjust lifestyle. Downsize your standard of living to cut down on costs.
Delay benefits. The longer you wait to tap into Social Security, the higher the benefits.
Revisit plans. Check up annually to make sure your plans are on track.