My friend Alex, at age 56, has made very little plans for his retirement. He also believes that he is too old to start. In a recent conversation with him, I learned:
- He has very little (if any) retirement investments and is not currently saving any appreciable amount.
- He will still be making house payments he is 71 years old.
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- He has recently purchased a vehicle that he will be paying on for several years.
- His currently works two to three jobs requiring physical activity.
- He is in decent health, but has had increasing knee and leg pain in recent years.
- He is the sole provider for his family.
I could feel my stress level increasing as our conversation continued, but Alex seems to believe that somehow his retirement will magically be OK. “After all”, he says, “we have always managed to get by so far…so we will make it fine when retirement age comes. Besides, I am too old to create a retirement plan now, so what is the point in trying?”
Because Alex thinks he has waited too long, he has blocked the very aspect of making any retirement plans from his mind. Alex is wrong. It isn’t too late. If you, like Alex, have given up on trying, you are also wrong. No matter what your age, there are positive steps you can take today to make your retirement a plan instead of a fuzzy wish. This tips will help:
Make a plan.
Be realistic. If you cannot achieve a retirement income equal or more than your current working income, plan for your retirement standard of living to be lower than your current standard of living. And DO NOT count on Social Security to fund your retirement. It is a broken system doomed for failure.
Get out of debt.
I know. You hear this all of the time. But this one step is the simplest way to increase your retirement cash flow. Think of it like this: that $500 car payment, $800 credit card payment and $400 furniture payment translate to $1,700 a month toward your retirement income – IF you pay them off. This equates to drawing 3% annually from a $680,000 nest egg. Which is easier: getting out of debt or saving $680,000?
Pay off your house.
House debt and retirement are not good chemistry. As in the previous illustration, that house payment will be going to you instead of the bank – when the house is paid for.
Hint: if you are considering purchasing a house, plan the term of the loan to be less than the number of years before you retire.
Save.
No matter how old you are, it is never too late to start saving. Start an IRA and max out your IRA contribution limits. Whatever nest egg you accumulate will be more than if you don’t start. Besides, you will be learning a habit that you will need once retired: live on less than you make.
Plan to work part time.
What do you love to do? Start doing it part time now and save every penny you earn. Then, when you retire from your full time job, you can supplement your retirement income by doing something you love to do.
Keep working as long as you can.
Retirement does not magically happen at some arbitrary age; it happens when you can afford it. The longer you are able to work (and do the things I listed above), the better you will be able to afford it.
Don’t give up like my friend Alex. Those years will come whether you prepare or not, so take steps now to prepare.
Alex: are you reading? I hope so.
Readers: what other suggestions do you have for those who have not planned for retirement? Any ideas on how to make the Alex’s in this world wake up?
My husband and I both have retirement through our current employers: him–State of Illinois; me–TRS. In addition, he has a deferred comp. program that allows us to invest. Do you have any suggestions regarding the deferred comp. program?
I think learning how to save for something is the single most important personal finance habit! Changing a habit is very difficult, I wish him luck.
I think you covered all the major points. It seems the biggest thing they have to do is to reduce expense ASAP. The longer they wait, the bigger the hole will be. Things won’t be magically OK and it’s irresponsible to keep going that way.
Like RB40 said, you already covered the main points. I think there is a comfort in denial, at least until you reach the point where you can’t deny it anymore. It’s always a sad day when you have to face the music for your decisions. That’s why addressing it earlier, even though it is painful, will be in your friend’s best interest. I’m sure he feels about 3 decades late to the party though. 🙁
After this HUGE blow we all got with the recession, getting in debt seems, sorry to put it this way, stupid. I can’t wait to pay off my car (5 more payments) and am done with everything. i have ZERO overdraft on my cards, I am saving money and will buy only the stuff I afford.
Saving for your retirement is not late, you should do it even if you’re close to it already. ANY CENT SAVED IS SAVED 🙂
@Cryshouse,
Unless there is an employer match (which there isn’t with the State of Illinois), I would not recommend the deferred comp investment. Instead, I would put my money into a Roth IRA. In fact, both of you could open Roth IRAs. You have to pay the taxes before investing into a Roth, but all of the growth is tax free, and you will pay ZERO taxes on the Roth when you retire.
@krancents,
How true. Long term habits die hard! I hope Alex “sees the light”, but he is not interested in making any changes … yet.
@RB40,
Well said. It is never too late to make plans, but those plans become increasingly more difficult the longer one waits. I assume, if his health holds up, Alex will be working into his 70s. If his health doesn’t hold up, he will be in trouble.
@Roshawn,
Good to hear from you, my friend! Your sentence “It’s always a sad day when you have to face the music for your decisions.” is all too true. I am concerned that Alex will experience that “sad day”.
@dojo,
Good for you! Get that car paid off and you will be able to save even more! You are correct…it is NEVER too late to start saving!
You are so right. I am paying $450/month for it, this money can go to my savings account. I’d pay if faster, but they charge you more fees for doing this. Well, gotta love the banking system in my country 😀
When one gets that age (me too) and the bones start aching retirement seems so desireable on the one hand but the panic sets in that we are not ready. Thanks Joe for the reminder and all the good points. The one I would add is consider downsizing now, do it, and use the money to pay off debt and/or save. The second, would be to consider what might be a good way to bring in an income enough at least to pay taxes and start that small business venture now. My uncle did it with a Christmas tree farm.
@Carol,
Good point…downsizing now will not only help with debt reduction, but will help one get acclimated to a realistic retirement lifestyle. Starting that small business venture is always a good idea!