Realizing that at some point you’re going to want to retire from work while approaching 50 years of age with limited savings is a highly stressful situation. What makes this extremely difficult is that unless you want to work until the day you die, there’s now somewhat of a limited time frame in which to begin to build up an adequate retirement fund.
While it’s true that starting earlier would have provided the advantage of compound interest, it’s also true that it’s never too late to make positive changes. If you’re 50 or closing in on it with little saved for retirement, here’s a roadmap to guide you towards a more secure financial future.
1. Realize the reality of the situation
Before anything else, it’s important to approach this situation without panic. While you might feel behind, remember that many others are in a similar position. Your objective now is to move forward with clarity and a plan.
No, it’s not a great position to be in and in fact, it’s going to be hard work. However, if you were to start today and commit to executing the plan consistently each and every day, you’ve got a great chance of being able to retire at a reasonable age.
2. Assess Your Current Financial Landscape
In order to know what needs to happen, you need to determine exactly where you stand financially. This means getting a complete picture of everything that you do and have done relative to your finances:
Assets: List everything of value, including property, vehicles, jewelry, and any savings or investments you currently have.
Debts: List all your debts, from mortgages to care payments to credit card debts, to understand your liabilities both short and long term.
Expenses: Create a monthly budget to see where your money is going. Identify non-essential expenses that you can cut.
3. Supercharge Your Savings
Now’s the time to play catch-up. Here’s how:
Maximize Contributions: If you have access to a 401(k) or similar retirement account, aim to contribute the maximum amount allowable, especially if your employer offers a match. If your employer does offer a match, strive to make sure that at a minimum you’re contributing the minimum amount to receive all of what your employer is offering to provide.
Consider an IRA: If you don’t have a 401(k), look into opening an Individual Retirement Account (IRA). If you’re under 50 years old, you can contribute $6,500 a year and if you’re older than 50, you’re eligible for catch-up contributions for a total of $7,500 per year.
Cut Non-Essential Spending: Funnel any extra money into your savings or investments. Every dollar counts. In order to know how much you are spending you need to establish a budget. I highly recommend you create and follow what I call a ‘No Budget Budget’: https://thefinancialstoic.com/the-no-budget-budget/
Once you know what you spend in total, work relentlessly to reduce and eliminate ‘wants’ so that you’re just focused on spending on ‘needs’ and saving and investing the rest.
4. Invest Wisely
Given your age, the common tendency is to try to make up for the time that you weren’t investing. Unfortunately, this leads to bad decisions made chasing high-risk investments in order to increase returns.
I’m going to let you in on a little secret. Sorry but there are no shortcuts in investing. It takes time in order to invest properly.
High returns, or at least the ‘promise’ of high returns, more than likely will result in high losses due to a large risk profile which would be needed in order to provide those higher returns. This is the EXACT opposite to what someone who has limited time should do in order to build wealth.
Thus, a balanced approach is crucial:
Diversify: Spread your investments across various assets. This helps to mitigate risk.
Seek Professional Advice: A financial planner can offer guidance tailored to your specific situation. They can help structure a strategy that considers both your age and your financial goals.
5. Reduce Debt Aggressively
High-interest debt, especially credit card debt, can severely hinder your ability to save and invest for your retirement. Focus on:
Prioritizing High-Interest Debt: Pay off the debts with the highest interest rates first.
Refinancing: Consider consolidating or refinancing options if they can offer you lower interest rates but ONLY do it if you are committed to not incurring additional debt. The surest way to never retire is to consolidate existing debt only to incur more debt.
6. Reevaluate Your Retirement Goals
You might need to adjust your vision of retirement:
Consider Working Longer: Delaying retirement by even a few years can significantly increase your savings and reduce the number of years you’ll need to fund. This also allows for a later draw on Social Security allowing for a higher eventual monthly payment of SS benefits and a couple more years of accruing funds in a deferred compensation program (401k or 403b).
Part-time Work in Retirement: Many find part-time or consultancy work not only financially beneficial but also mentally stimulating. This also allows individuals to hold off tapping retirement accounts and Social Security by making just enough to pay for living expenses.
7. Look Into Other Revenue Streams
Now is the time to get creative:
Downsize: Consider moving to a smaller home or a more affordable location.
Rent Out Space: If relocating isn’t an option, think about renting out a room or using platforms like Airbnb. Living in other low cost of living countries can also be part of your strategy where the exchange rates are highly favorable. This can help stretch out a lower retirement fund.
Monetize Hobbies: From photography to crafting, your hobbies could turn into a modest income
8. Consider Healthcare Costs
As we age, healthcare becomes a significant concern:
Insurance: Ensure you have health insurance in place. Look into Health Savings Accounts (HSAs) if you qualify, as they offer tax advantages.
9. Stick to the Plan
Lastly, approach your financial future with a positive attitude and STICK TO THE PLAN. Nothing can stop the momentum of making multiple good financial decisions like veering from the plan and making bad choices.
Good financial decisions have a way of compounding just like interest. Bad financial decisions compound as well, however, just against you.
Conclusion:
While starting your retirement journey at 50 years old, or close to it, or with limited savings isn’t the ideal scenario, it’s a journey that can be conquered. With determination, knowledge, and the right strategies in place, you can work towards a future where financial stability in your golden years becomes a reality.
Remember, the best time to start was always yesterday, but the second-best time is now.
