Hugh F. Wynn
"Excu-u-use Me" Series: The Fearsome 50-Somethings
I’ve spent three recent blogs discussing the various excuses made by the 20-, 30-, and 40-something age groups for not sufficiently saving for retirement. I now introduce the reasons that 50-somethings don't save and what it means for them if they only have $100,000 or so socked away right before their 6th decade of life - with retirement right around the corner. I'll pause here while you watch the video that features those excuses...
Beyond the Excuses
For the most part, the average family had socked away little more than a $100,000 or so by the decade leading up to their retirement. And how inadequate that sum of money would likely be – in combination with Social Security – to navigate perhaps the 15-30 years many folks will spend in retirement. So what do these delinquent non-savers do to bridge the gap between a “no worries” retirement and one filled with the stress and strain emanating from poor financial management during those earlier years?
The first thing that pops into my head is to suggest that these “late savers” keep working beyond the normal retirement years. Some folks do this anyhow because they enjoy what they do and have no desire to hang up their spurs. But so often, these are the very people who do not need to continue working. In any event, to keep working is a choice many people will have to make. That’s assuming it remains a viable option. Studies show that over half of retirees actually quit working earlier than expected because of ill health, layoffs, or the development of unexpected responsibilities such as taking care of elderly family members. The list of reasons forcing early retirement are many and seldom anticipated. As insurance against the unexpected, a backup plan to the “work option” is always wise.
It’s not uncommon for those with inadequate savings to enter the retirement years saddled with a mortgage on their home. A home in which they raised their family, but an empty nest that is now too large for an aging couple or a surviving spouse. And even if a mortgage no longer exists, upkeep and property taxes continue to take an outsized bite from those Social Security checks and what little income (or some small portion of the principle) their savings produces.
Still, downsizing can often reduce the carry on a home both in maintenance costs, utilities and property taxes – unless the aging seniors suffer the misfortune of living in an area where a newer, smaller home can cost as much as a larger, older home. In short, downsizing is not foolproof, but it’s an option particularly when one considers that age and/or infirmities ultimately become factors in caring for a home. And remember, those savings resulting from downsizing, like yields on investments, compound over time.
Debt & Expense Reduction
While speaking of mortgages, folks approaching retirement with inadequate savings should pay particular attention to debt (and living expenses in general). Any family, young or old, carrying too much debt is less likely to save enough for retirement. And once a family reaches that “decade before retirement” threshold with inadequate savings, it becomes extremely important to concentrate on debt reduction, particularly credit card debt. An effective way to do this is to get out those scissors. Cut up the cards. Or at the very least, pay off the balance(s) each month. In short, fine-tune that monthly budget (assuming you have one). Be ruthless in cutting back on needless purchases. For starters, quit dining out so much. Cut back on movies or those monthly subscriptions to all of that fine TV entertainment. How about slimming down the travel budget or eliminating those low-probability lottery tickets? And do you need the very latest in electronic gadgetry? In short, take another hard look at your Million Dollar Habits… the very habits that might have contributed to your unfortunate financial predicament in the first place.
A common surprise is that, despite the government charts, many retirees underestimate their longevity – their time spent in retirement. And along with that underestimation comes a plethora of other surprises… often ordinary but very inconvenient costs. Just because you’re older doesn’t mean the AC won’t go out, a termite invasion won’t occur, the washer and/or dryer won’t quit, or the house won’t need a fresh coat of paint. Nor does it mean that an elderly parent or an adult child won’t need financial help. Or that a bright young grandchild won’t need some assistance in meeting tuition payments.
Even for those who did a good job saving for retirement with IRAs and such, reaching age 70½ can have some unexpected negative consequences. I’m talking about those Required Minimum Distributions (RMDs) that must be withdrawn whether or not needed to buy groceries. Although RMDs are always nice sources of retirement income, they shove a surprising number of retirees into higher tax brackets (yeah, I know, you thought your tax rate would go down with age). And because of those myriad stealthy Obamacare taxes, RMDs too often translate into increased Medicare Part B premiums, which are tied to annual income... another serious bite out of those Social Security checks.
Remember, It’s Never too Late, But…
In summary, the point of trying to catch up after entering the fifth decade of your life can be a painful process, but it’s time to stop kidding yourself about your true financial situation. Lay your cards on the table as you consider the available options. They may or may not be realizable options. You may not be able to work due to health issues or the lack of available opportunities. You may not be able to gain much ground by downsizing. Maybe you’ve already slashed your debt and expenses to the bone. Point is, you need to do something and a good place to start is to develop (at last) a plan… a budget you actually follow… a practical approach to the last third of your life.
And remember, It’s Never Too Late, But Right Now Is Best.