A reader named KC recently wrote in with a question about investing for retirement:

I’m 28 years old with a wife and a six month old baby. We’ve always been money-conscious, but would really like to focus our efforts. We both have Roth IRAs, but are not satisfied with them. They are heavily loaded, and we weren’t that familiar with them when we were advised to set them up. My question is where you would recommend I go for a long-term investing vehicle? I always hear to go with no-load mutual funds but would like your opinion.

This is a great question. I’ve said it before, and I’ll say it again… Friends don’t let friends pay mutual fund sales loads.

My personal preference when it comes to long-term investing centers is low-cost, no-load mutual funds. When I say low cost, what I’m really talking about is “passively-managed” index funds that seek to match the market as a whole, or some segment thereof.

Now the question is where you go to find low-cost index funds. Here you have three general options:

1. Mutual fund company
2. Discount Broker
3. Automated Investment Service (a.k.a. robo advisors)

Let’s take a look at all three and the pros and cons of each.

Mutual Fund Companies

As for my favorite places to invest, Vanguard is at the top of my list. We also have some money with Fidelity and have been quite happy with their offerings. A third option would be Schwab, who has a bunch of low-cost mutual funds with a low minimum investment of $100.

It’s important to understand that not all mutual fund companies are created equal. Vanguard, for example, specializes in index funds. It also has three tools to make investing easy:

• Target Retirement Funds: Simply pick the fund that corresponds with the year you plan to retire (e.g., Target Retirement 2060), and Vanguard takes care of the rest. It allocations your investments between stock and bond index funds. And as you near retirement, it shifts more of your money toward safer bonds.
• Lifestyle Funds: These are similar to Target Retirement Funds in that Vanguard handles the allocation of your money and rebalances your account. Rather than picking a fund based on when you plan to retire, however, you’ll pick one based on the allocation you want between stocks and bonds (e.g., 80/20). This allocation does not change unless you change it.
• Vanguard Personal Advisor Service: For a fee of 30 basis points (0.30%), Vanguard will manage your investments for you. For those looking for hands-on advice, it’s one of the best deals out there. You do need a minimum of $50, 000 to invest, so this service may be more suitable for those converting a 401k to an IRA.

Fidelity offers similar retirement fund options, although not all mutual fund companies do.

Discount Brokers

A second option is to open an IRA at a good discount broker. This approach is ideal for those that want to invest in individual stocks or ETFs. The major mutual fund companies do offer brokerage services, but they generally don’t compare to the online brokers who specialize in this service. Here are a few of our favorite options:

• OptionsHouse
• TradeKing

Robo Advisor

Finally, robo advisors have become an excellent way to invest in both taxable and retirement accounts. These low-cost services make investing easy. They help you select a portfolio that meets your needs. They then automatically rebalance your investments.

These services offer IRA accounts. Two of my favorite options are Betterment and Wealthfront.

Of course, there are other options to consider, such as opening a Treasury Direct account so you can buy Treasury securities such as T-Bills, T-Notes, T-Bonds, Series EE Savings Bonds, Series I Savings Bonds, etc. This will allow you to purchase these securities direct from the Federal government with no middleman.

Just keep in mind that the optimal composition of your portfolio depends on many factors, so you really need to give a lot of thought to your time horizon, risk tolerance, etc. before you make any major moves.

I told the story elsewhere of how my wife and I woke up in our late 40s to a harsh realization: our investment cupboard was bare. We were not alone, though. In fact, millions of Americans in their 40s or 50s don’t have nearly enough money saved to retire.

In a recent GAO survey, 29% of households age 55 or older had no retirement savings. Another 23% had a pension, but no additional 401k or IRA.

So what can you do if you find yourself in that position? After you shake off the scorn of the self-righteous around you and stop beating yourself up, it is time to get to work. The good news is that there is hope. We managed it, and you can do it, too.

The strategy

There are a few ways to get from where you are to where you want to be, but they all take a little bit of work.

1. Cut

The first step is you have to cut your expenses to the bone. The key number you’re looking to improve is the difference between your income and your expenses. The quickest and easiest way to do something about it is to focus on reducing your expenses.

If you are serious about getting caught up, Step 1 is to put together a budget. List all of your income and expenses, no matter how trivial they may seem. Then, you need to put the knife to the expenses, sparing no holy cows: vacations, eating out, movies, hobbies, smartphones, car(s)… everything has to come under the knife.

The good news is that you are usually at or close to your peak earning years, so creating a surplus is usually a lot easier than for a 20-something. But still, it isn’t going to be easy. Expect pain. Saving and living on a budget is not pleasant, especially if you are not used to it. Doing it to catch up is even less enjoyable. No matter what, this is a MUST.

2. Earn more

Set a target to earn more money. Start small, maybe even just $200 a month. Find things to do like moonlighting, selling off collections, making money online, or monetizing a hobby — the list of possibilities is limited only by your determination to catch up.

Here is an interesting thing many people discover: once you start pursuing opportunities for extra income, the more they present themselves. It’s almost as if they crawl out of the woodwork. Don’t ask me why — all I know is that I experienced it and I hear it from others all the time. Once you start trying to (and succeeding at) earning more, you can begin to set your target higher.

Many also discover that once they start to turn their hobby into an income, they do better than they expected. It often becomes a natural segue into a fulfilling and profitable retirement. But you rarely get there without setting that first extra income goal.

3. Save aggressively

Rather than save what is left over between your income and expenses, save first. Force your costs to match what is left over, and don’t even leave yourself the option to under-save or skip saving altogether some months. If you don’t pay yourself first, chances are you will not get caught up.

Make maximum use of the tax-advantaged funds available to you. My wife and I made our priority maxing out both our IRA and 401(k) contributions. No, it wasn’t easy at all, but desperate times call for desperate measures. Results trump “easy” when you are in the position of playing catch-up. Check out our list of the best places to open an IRA to get started.

On top of the retirement accounts, pay down as much on your home mortgage as possible. That’s the largest monthly expense for almost everyone — once that is gone, your monthly obligation drops significantly.

4. Research social security

I heard from a financial planner that there are 587 ways for married people to file for Social Security. How and when you do it can affect your payout significantly. This is something we didn’t do, and we still haven’t figured out how to do it without involving financial planners who want to sell you annuities.

Some financial planners specialize in social security. They use sophisticated software to figure out the best approach given your specific needs. You’ll find an interview with one such expert here. You can also check out Get What’s Yours — The Secrets of Maxing Out Your Social Security by Laurence J. Kotlikoff, Philip Moeller, and Paul Solman.

5. Plan to work past 62

Many people fixate on 62 because it is the youngest age at which one can begin to collect social security. However, if you have a job, can hold on to it, and are able to work, it will be worth your while to plan on staying for a few more years. The good news is that life expectancy is increasing, and improved health means many more people are capable of working well beyond 62.

However, increased health and longevity can be a double-edged sword. It means we all will probably live longer than the generation which preceded us. In turn, that means that whatever funds you have set aside for your retirement will need to last longer than you anticipated.

Working past 62 not only adds to the fund, but it also postpones the day you begin to draw against it.

6. Change your lifestyle

While similar to cutting expenses, the idea of living on less is meant to be a bit broader. Think of it as Phase 2. You should explore options like going from two cars to one, scaling down your home to the minimum you can live in, etc.

If you are looking at an underfunded retirement, you know you will have to make drastic changes to your lifestyle. The earlier you do that, the less likely a change like this will be traumatic for you.

7. Stop supporting dependents

It may sound callous or cruel, but you may need to nudge a few baby birds out of the financial nest. If your retirement fund is short, it makes no sense to put the needs of children, their families, or other people who should be taking care of themselves before your needs. This is especially true if that would result in you being unable to support yourself.

Once your finances come into line, you can always resume doing nice things for others. However, continuing to support dependents when you are at financial risk is short-sighted.

8. Become knowledgeable about investing

Warren Buffett’s famous rule for investing is, “Don’t lose it.” That, of course, refers to avoiding unnecessary risk. However, when you are 50 with no retirement fund, you have largely forfeited the luxury of picking investments with modest earnings but high security/ You would have been able to enjoy these in your younger years, but it’s a bit too late for that now.

There are investments that have higher returns than the index funds thought of as “safe.” Of course, taking advantage of those requires more than just a passing knowledge. You might think of it as another career…. and in a way, it is. The only way to “not lose it” is to know more than most other people, and that takes time and effort.

The mindset

If this sounds like an uncomfortable topic and strategy, it is. “No pain, no gain” is not just applicable to physical exercise. But if you know it up front, you can knuckle down and get where you want to be.

What got my wife and me through the serious sucking-it-up part of catching up to retirement? It was our view that this was a challenge… a project, even. We never had a woe-is-me attitude. Instead, we looked at it as a difficult goal– not easy, but not impossible, either.

Admittedly, we didn’t have to make emotionally tough choices like cutting back on things for kids or grandkids. We also didn’t have health issues, which can wreak havoc on any plan, normal or catch-up.

We also had a few investments work out unexpectedly well for us. Although there is no guarantee that will happen, I suspect it happens to many people. However, when it does, be sure not to react like I did when I was younger: to celebrate by spending it. When you are in project mode, those windfalls can’t be allowed to disappear. They become crucial building blocks.

Is it easy to catch up to building your nest egg, when you wait ’til late in the game? No. But it is possible — and, in balance, that is at least some good news.