Didn’t save enough for retirement? You’re cooked.
- January 30, 2010
- 2 comments
- Posted in Latest Posts, Retirement
What can you do if you’re being forced to retire without enough savings? That’s a question I’m getting a lot, as I book-talk my way up the West Coast. The unfortunate answer is, you’re cooked.
Maybe you can find another job to tide you over for a few more years. But when your paycheck finally stops, your future depends entirely on how much money—in savings and investments—you have on hand. If it’s not enough, it’s too late for remorse. You’ll have to figure out how to live on what you have. I hate telling people that because everyone likes to hope that something, magically, will set things right. But the longer you kid yourself, the harder the next phase of your life will be.
If you hit this wall, you need to face it right away. Otherwise, what savings you do have will melt away. So sit down with your money, your savings and your debts, and plan your financial life all over again. First, figure out how much you can afford to spend each month, so that your money will last for life. Second, rearrange your life to fit within that budget. The arithmetic is simple but, emotionally, it’s hard. If you don’t cut back, however, you’ll be looking at bankruptcy by 75.
Without enough savings, you’ll almost certainly have to find a cheaper place to live. Expensive pleasures will have to go. The cutbacks will be especially painful if you’re also carrying a mortgage and consumer debt. When you lose your paycheck, debt is a millstone around your neck. I strongly recommend a visit to a fee-only financial planner (that’s a planner who sells no products and takes no commissions) who can help you map a strategy for the years ahead.
When I say “you’re cooked,” I mean only that you’ve lost your chance of keeping the standard of living you have today. You can have a good life but it will be a different one.
I wish, I hope, that younger people will notice what’s going on with the newly retired. A whole generation of consumers spent too much, saved too little, and arrived at retirement unprepared. They thought they could work forever, but illness or the bad economy cut their worklife short. Now they’re stuck and there’s no way to make up for the money they failed to put aside.
It has always been hard to persuade the young that they ought to start saving for retirement when they’re in their 20s or 30s, and never to raid the funds they set aside. If ever there was a persuader, however, it should be the sight of parents or relatives, forced to retire unready, who will be scrimping for the rest of their lives.
It’s not too late for the young to write a different ending for themselves. Save, save, save, and stay out of debt. Nothing else works.
Tags: early retirement, retirement savings
Many of gen X and beyond are losing trust that the government will come through with Social Security. We see programs being bankrupted by boomers in addition to their lack of savings. That’s enough of a shock to convince some, certainly not all, to save more. As a young man in my 20s, the most powerful influence came from older colleagues who continually suggested that I put away whatever I could. (I wasn’t listening to any advisors at that time.) I believe the best help for young people might involve default choices for savings by employers (e.g. – as described in Nudge by Thaler/Sunstein). Studies show most take he default option suggested and, as you point out on a number of occasions, our appetites for spending can adjust to what’s in our accounts.
This “recession” is good for the next generation, the same way it was good for many (though obviously not all) of mine.
- Learn to live with roommates. You’ll make friends for life while you save for education and your own real estate investment (with 20% down) and no stupid double mortgages.
- Immediately start investing in savings bonds. Even though I was stuffing my little cup of soup with soda crackers at lunch to make it filling, I immediately signed up for savings bonds. I never really missed the $10 per pay check. I couldn’t touch the money without a penalty for 20 years and received a bond in the mail. I hope they still mail the bonds – they looked cool and were a nice little pat on the back. They saved my butt years later when I needed an emergency fund.
- I’ll believe there is a recession when… the drive-thru line at Starbucks isn’t a block long… the manager at the Home Value store can be bothered to call another store … the price of an oil change goes down (yes, I have done it myself in the past)… actually, the price of anything going down would be nice.