Need to bump up your retirement savings? It's time to shrink your lifestyle.

Orignially appeared in USA Today and The Indianapolis Star

Note: This column is the third of a four-part series on how to retire successfully when starting from scratch at age 50.

Finding yourself 50 and broke isn’t exactly what you had in mind when you graduated from high school.

And, to be fair, you may not even be bothered by your asset-less current reality. Not having money isn’t indicative of a bad life or poor choices, and any insinuation to the like is as pointless as it is unsubstantiated. Time just got away from you.

All that is in the past. There’s nothing you can do about that, so don’t waste any energy trying to rewrite history. I need your focus here. You need your focus here.

Before we dig into this week’s action plan, I have incredibly good news to share. In the past week, numerous people north of age 70 have emailed me and shared their starting from scratch at age 50 success stories. I have no doubt that you may have doubt at the veracity of my insistence that you can start at 50, broke, and retire successfully at age 70. You absolutely can do this, and my email inbox is filled with stories from people who have done it.

The first two weeks of our four-week project were dedicated to eliminating your financial past (debt) and living a more realistic financial present (lifestyle). We had to start there, because if we didn’t, there would be no chance at a future. It’s the same reason 401(k) meetings at work have been so frustrating.

A well-meaning financial professional stands in front of the room and tells you to save more for your future. You indicate you can’t afford to and then they say you can’t afford not to. Thanks for nothing. If you’re 50 and you don’t have much saved for retirement, you’ve undoubtedly been a party to this unhelpful exercise before.

Allow me to refresh you on some important numbers and details we’ve previously covered. This entire project is based on a $60,000 annual income. You started by contributing 5 percent of your income into a company-sponsored retirement plan — such as a 401(k) — and assumed a 3 percent employer match. You then dedicated the first two years of your focus to eliminating consumer debt, and last week, you began your effort to reduce overall household spending by 10 percent. And don’t forget, your estimated take-home (net) monthly pay is $3,400.

Now’s as good a time as any to let you in on a little secret: You’ll be able to pull this whole thing off because you will have invested the money you learned to live without.

I told you last week that this week’s column would contain the hard math, but before we get there, I need for you to think like a squirrel preparing for winter. Pick your favorite bushy-tailed rodent, be it the eastern gray or the northern flying. I have no preference.

In order to have enough nuts for the long winter ahead, you can’t instantly consume every nut you encounter. And as long as your demand for nuts doesn’t magically increase when you go to consume your stored nuts, your demand for nuts will match your supply of nuts.

Reducing your expenses by $340 will initially allow you to get out of debt over the first two years of this project. During these years, you should also use any tax refunds, bonuses, or any other extra income to pay off debt. Once you eliminate your debt, or if you didn’t have any debt to begin with, redirect the $340 per month you’re no longer spending, toward your company-sponsored retirement plan. Remember, you’re already contributing 5 percent of your $60,000 income to your retirement plan and getting your employer’s assumed 3 percent match. Adding your $340 to your retirement account means your monthly contribution will be $740 going forward.

Assuming it takes you two years to get out of debt and you don’t redirect your $340 per month to your retirement account until then, your retirement account balance at age 70 will be approximately $362,174. This is based on a 7.17 percent annual rate of return, which is the previous 20-year average of a 60/40 (stock/bond) portfolio. At a 3.5 percent distribution rate and a 20 percent tax rate, your projected monthly income in today’s dollars will be $897.89 — or an inflation adjusted $613.34.

Another thing happened when you reduced your monthly spending by $340. You just reset your retirement income need. Your goal is now to replace $3,060 of income, instead of $3,400. That’s $3,060 in today’s dollars, but $4,673 in inflated 2038 dollars (at a projected 2.14 inflation rate). Yeah, inflation’s the worst. If you’ve never been motivated to drive your lifestyle lower, you will be now.

Before you hyperventilate, however, understand that your estimated Social Security retirement benefit at age 70 will be $2,443 in today’s dollars, or $3,768 in projected COLA dollars. If you’re still awake, that means at your freshly reconfigured current lifestyle, at age 70 you’ll need $4,673 of income and you’ll have $4,381.34 ($3,768 plus $613.34) income available.

All this work and you still have a projected shortage. Can you imagine how awful this would look if you never made the choice to turn over a new leaf? Alas, there’s still a shortage. We’re not done.

Next week, I’m going to reveal the magic bullet: housing. I guess I just revealed it.

Anyway, come back next week to understand how to use it.

Missed part two of the series? Click here to see How your current spending habits affect your retirement planning.