When you are in your 50’s and are thinking about your retirement and all the pleasant thoughts of having your time be all your own, you may be in for the shock of your life! I tell you this so that you react now and don’t wait a minute longer to prepare yourself for the retirement realities that may be just around the corner.
Even if you are 40, or even 30 something, and you think retirement is a goal that is close at hand for you, you should know more about what waits in retirement that perhaps you think can’t or won’t happen to you. For most of us, 50 is a toll booth that stands between you and the path to a financially happy retirement in the sense that it’s a mile marker and it’s up to you to make sure you have your “easy pass” ready to meet the toll collector. It’s not too late to reach into your pocket for the exact change and make sure that you don’t have to get off the road and travel the long way towards your peace and contentment.
According to a recent survey done by GoBankingRates.com, 30% of all Americans over 55 have saved $0.00, nothing whatsover, towards their retirement. And even worse, 80% have planned and saved so little that they’re in imminent danger of being in poverty if they ever retire.
But wait, there’s more. 42% of Millennials haven’t begun saving for retirement. More than half of Generation X have less than $10k saved for retirement. And most alarming of all, 28% of people over 55 have no retirement savings at all!
Scary, isn’t it? The truth is there’s still time to do something to help yourself and your spouse turn around what appears to be a disaster waiting for you.
This following list is a good way to begin the process to get your retirement back on the right track. The time to start is now no matter what your age. Check it and see if you have prepared and acted in what most experts and I feel are essential to the peaceful “golden years” that are sneaking up on all of us more quickly that we realize.
1. Budget for a longer life, 70 is the new 65
If you’re paying any attention, you realize that people are living longer today than ever before. According to the Center for Disease Control, the number of people living to 100 rose 44% in the last 15 years. If you make it to age 70, then you can expect to live into your 90’s. So how does that affect your retirement planning? If you thought that Social Security is your safety blanket, keep in mind that it was never intended to support you fully when you retire. The average retiree still provides 56% of other income sources besides Social Security to live on, and that is only at basic comfort levels. Review and budget what your expected expenses will be and how they can be adjusted to increase your disposable income now.
2. Start saving immediately, if not sooner!
The old saying “it’s never too late” isn’t always the truth. But age 50 is is the final countdown and is the time when you can still change your fate. Auto-save from your paycheck. You’ll hardly notice it. Just put it towards some kind of interest bearing or investment purpose to build up your retirement kitty. There’s been a “golden rule of finance” for generations and that rule is simply: pay yourself first! That means before mortgage payments, credit cards and any other expenses you may have. That’s the best way you can make up for your lost time in preparation for retirement.
3. There’s no such thing as extra money
Bonus? Birthday money? Tax refund? All of those and more should go directly into your retirement fund. The ability to bump the numbers up quickly are critical. Don’t assume that you can splurge with windfalls now, but think about the future when that money may be insuring your lifestyle for years ahead. Treat your retirement as an emergency (unless of course you don’t have an emergency fund, which you should get first).
4. Never dip into your retirement accounts
No matter what your age, this is my rule. After age 50, I may have to beat you mercilessly if you even mention “borrowing” from those accounts. You can never make it up if you have saved for decades and then take that money and use it. Time is your best friend in retirement investing and at age 50+ you will have wasted years of growth and compounding if you break the rules.
5. Take advantage of free money
Matching funds in your 401k must be maximized. If you don’t have that happening when it’s offered, you are just plain foolish. You can find some way to make it happen even if it means you drive a smaller car or shop the sales every time you buy new clothes. C’mon, it’s free money! It’s the only thing I know of that can enhance your retirement without you reaching into your pocket. Matching funds are like a gift from heaven!
6. Increase your Traditional IRA contributions
It’s not free money, but it is a tax differed reduction of your income when you do your tax returns each year. This year, those 50 and over can take $6,500 as a contribution (all others under 50 can take up to $5,500). That’s a way the government is allowing you to make up for lost time and you need to do it every year they allow it if you’re behind in your planning.
7. Beware the dreaded inflation factor!
If you have been lulled into thinking that inflation just isn’t going to happen, wake up and smell the coffee please. Yes, the past several years have seen surprisingly low inflation rates but reality check 101 says that over many years it has and will continue to rise. Consider this: If something that costs $500 today increases just an average of 2% a year over the next 25 years, it will then cost $823. And even more shocking, if it increases just 4% a year over that span, it will almost triple to $1,333. I’m old enough to remember back in the early 1980’s when inflation was in the double digits so it can happen. You must be prepared for it.
8. Create alternative income streams
Social Security is in danger. We all have heard the horror stories about it. Many younger people feel that it won’t exist for them in their future. I don’t believe that’s going to happen, but there is a good possibility that retirement rules will be changed in the effort to maintain the system. Look, Social Security was never intended to be the sole support of a retired worker. Besides, back in 1935 when it was conceived, people didn’t live as long as we are today so the monies were more appropriate then as opposed to now when we can collect at age 62 and live until 100. You probably need to add income streams from investments, savings bonds, real estate, side hustles, pensions or even part time jobs in retirement if you are going to be living at the same level you are today. The best alternative is to downsize your lifestyle. If you were to sell your $250,000 dollar home today at age 50, and buy a new home at $150,000, you can generate $75,000 in additional retirement income in just 15 years. Add in the reduced utility and real estate taxes, and that number goes up even more. Doing it now, after your kids may be grown and out of the house makes it practical. If you don’t need that extra size and space, why not cash it out as soon as you are able? Eliminating your mortgage in retirement is such an advantage it’s almost a spiritual experience.
9. Prepare for expensive medical issues
It’s a fact that as you age, medical issues occur with greater frequency. You will definitely need money to handle insurance, doctors, hospitals, tests and medications as you enter retirement’s traditional time. It is costly and ever increasing, even as I write this post. Medical costs and insurance for my wife and me have been at 30% of our income for years, and it has been a real headship. Is it going to change? I doubt it. You need to have an emergency medical fund as a part of your retirement plan to protect yourself. Consider long term insurance plans or even deferred annuities to help you deal with this issue.
If you have prepared yourself properly for retirement, it still doesn’t hurt to review your planning and where you believe you are on that path. If you’re worried and feel you’re not where you want to be, now is the time to reconsider what you can do to change your future. You will only truly understand the challenges of retirement finances when your weekly paychecks stop coming and you are left on the proverbial “fixed income” that is referred to by most retirees. Social Security alone will not cut it in the world of retirement realities.
Are you planning retirement soon? Are you one of the many who has no plan? What are you doing today that will make your retirement years comfortable and stress free? Are you looking at a rosy future?
Image courtesy of Ryan McGuire at gratisography.com (with changes)