How to retire with no retirement savings

What retirement planning advice do I have for people who make an average salary in America and have little to no retirement savings?

A reader posed this question in the comments section of a recent post I wrote that provided retirement planning advice for a hypothetical 65-year-old woman who earned $75,000 per year and had accumulated $500,000 in retirement savings. Our reader pointed out that most workers in the U.S. make less than $75,000 annually and probably don't have that much in retirement savings.

So, I'll take on this challenge. This time, let's say this 65-year-old woman makes $50,000 per year -- close to the median U.S. household income in 2011 according to Census Bureau statistics. Further, let's assume she has no retirement savings.

I'll start by stating the obvious: Investing strategies and methods for generating retirement income from savings won't help her because she doesn't have any assets to invest.

At this point, the most important decision she can make is to continue working until age 70 and wait to start her Social Security benefits at that age. Based on estimates from the Quick Calculator on Social Security's website, if she had retired at age 65 and started collecting her Social Security benefit then, her monthly benefit would roughly be about $1,500 per month, or close to 36 percent of her monthly salary. But if she keeps working until age 70 and starts Social Security then, her monthly income will increase to about $2,050, or close to 49 percent of her monthly salary.

If she wants to retire full-time at age 70 and no longer earn any employment income, she'll need to reduce her living expenses to the level of her Social Security income. She'll need to focus on buying "just enough" to meet her needs and be happy. Most likely this will be a struggle, unless she has paid off the mortgage on her house, which will make things a little easier.

To help cover her living expenses, one option she may want to consider is the "Golden Girls" solution of sharing living quarters with other people in her situation. If she owns her house, she may want to consider renting a room to bring in more income.

While these ideas may have obvious drawbacks, they would help reduce her living expenses significantly and also address the issue of loneliness, a serious problem for many elderly people.

If she wants to continue her current standard of living, instead of retiring full-time at age 70, she'll need to continue working to supplement her Social Security income. In fact, she could work half-time and still have about the same total income compared to when she was working full-time (remember that her Social Security benefit equals about half of her salary if she starts it at 70).

This way, she'll still have plenty of extra time to pursue her interests and feel like she's retired. Eventually she'll need to reduce her living expenses, though, because chances are good she won't be able to work much past 80. At that age, it's still likely she'll live for several more years, based on current life expectancies.

If she has home equity, another option would be to sell her home to gain some liquid assets, then deploy those assets to generate retirement income. If her home equity is $500,000 or more, this plan would help her retire earlier than age 70. In this case, she could use the retirement income generating strategies presented in a recent post.

Another possibility is for her to use a reverse mortgage to generate supplemental retirement income. Most likely, however, her home equity is much less than $500,000, so she should wait to deploy her home equity until she's physically no longer able to work and truly needs the additional income.

Many people might groan at the idea of working into their 70s, but our hypothetical retiree really doesn't have much of a choice unless she's able to dramatically reduce her standard of living. It's entirely possible she can't wait to retire for a variety of reasons -- she's bored at work, she doesn't like her job, she doesn't want to keep pace with changes at work, her health prevents her from working and so on. But that only identifies the problems she needs to address.

She could continue working if she found work that was flexible, enjoyable and keeps her physically and socially active, working with people whose company she enjoys. Easier said than done, I know, but that's the goal. She might take some consolation in evidence that suggests working in your retirement years enables you to keep your wits longer and be healthier.

To be satisfied with her life, our retiree will want to shift her goal from being retired full-time to being happy because a traditional retirement of "not working" in her mid-60s may not be feasible for her. Retirement for her will be more of a state of mind than a reality.

I can imagine that some readers will comment that the suggestions in this post aren't ideal or fair, and that hard-working people deserve a better outcome. While that may be the case, I'm addressing the reality of the circumstances of people who arrive at their retirement years with little or no savings.

People in their retirement years with little or no retirement savings have limited choices -- that's the reality of retirement in the U.S. today. I'm encouraged, however, by the flexibility, resilience and resourcefulness of most Americans, who'll need these characteristics to survive in their retirement years.

P.S. Don't want to get stuck in the situation described here? This 16-week guide to planning your retirement is a good place to start.

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    Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. Now he's a research scholar for the Stanford Center on Longevity, where he helps collect, direct and disseminate research that will improve the financial security of seniors. He's also president of Rest-of-Life Communications, delivers retirement planning workshops and authored Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck and Recession-Proof Your Retirement Years.