8/23/2013 7:00 PM ET|
It's not too late to salvage your retirement
For late starters, it's important to take aggressive steps now, including cutting your expenses.
Joanna VonCulin is 46 and just now starting to save "a measly amount" -- $50 a month -- for retirement. The executive director of a nonprofit in Montpelier, Vt., said she wouldn't even be saving that, but an investment adviser for her agency's retirement plan finally convinced her that "something was better than nothing."
Plenty of expenses and job interruptions got in the way of saving for retirement earlier, VonCulin said. Her son was born nearly four months premature, requiring her to quit working for a time to care for him. Her partner lost a job in information technology and has been struggling ever since to find work that would pay as well. Moving to a good school district for their kids, now ages 9 and 12, meant a sizable mortgage payment.
So VonCulin knows she's behind. She's just not sure by how much, and she's afraid to find out.
She's not the only one. Most people in their 40s and 50s haven't saved enough for a truly comfortable retirement. About 44% of baby boomers and Generation Xers won't even be able to cover basic expenses and are expected to run out of money before they run out of life, according to Jack VanDerhei, research director at the Employee Benefit Research Institute.
For late starters like VonCulin, there's no easy way to make up for lost time. The amounts they would have to save to replace most of their current income in retirement are simply too great.
Those in their 40s would have to save 20% to 25% of their incomes to match what they could have accumulated had they put aside just 10% starting in their 20s, said Delia Fernandez, a fee-only financial planner in Los Alamitos, Calif. If they wait until their 50s to start, they would have to contribute 40% or more of their incomes.
That's daunting. But refusing to save at all because you can't save "enough" is, in a word, stupid.
Anything you save will help supplement Social Security, which is likely to be your biggest source of income. If you get serious, you can actually create a decent retirement even with a late start.
But you have to get determined about:
- Spending a lot less
- Saving a lot more
- Working longer
You can't control what happens in the investment markets, the economy or your company's executive boardroom when they're deciding about layoffs. Most people can, however, seize control of what and how they spend, said Jeff Yeager, author of "How to Retire the Cheapskate Way." Spending less allows you to save more now and to consider retiring with a smaller nest egg, since your expenses are lower.
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Leigh Devereaux of San Dimas, Calif., had a wake-up call when she was laid off in the wake of the recession. She landed another marketing job within a month and began saving 60% of her net income. She realized she couldn't count on the government or corporations to take care of her, she wrote on my Facebook fan page. "I have only me to count on," Devereaux wrote. "People better get real serious because it's not going to go back to what it was."
Here's what to review:
Consider your house. Housing costs are likely your biggest expense and the biggest piece of the retirement puzzle, Fernandez said. If can pay off your mortgage by the time you retire, you may be able to stay where you are. If you'll still owe on a mortgage or are renting in an expensive area, you'll need to consider alternatives such as downsizing. "The question is, have they chosen a lifestyle they can sustain in retirement?" Fernandez said. "If not, they're have to scale back."
Take a hard look at your other spending. Some expenses, such as commuting costs and payroll taxes, end when you stop work. If you have kids, costs related to child-rearing will likely be finished by retirement. But most people need to look for areas to trim now if they expect to retire comfortably with a late start. "If you focus on the spending side, really drilling down, you can usually find money you didn't think you had to set aside," said Yeager. "Even more important, you're conditioning yourself to live on a budget." You'll find plenty of suggestions on ways to cut spending in the Smart Spending blog and in articles like "5 easy ways to cut monthly expenses," "How to cut your food budget in half" and "6 habits that will make you broke."
Run some numbers. Most people fear they won't have enough for retirement, yet have never tried to calculate how much they might need, according to EBRI research. MSN Money's retirement calculator allows you to test various contribution amounts, investment returns and spending levels. "Maybe the news is not as discouraging as you think," Yeager said. In any case, "once you see (the results), you can come to terms with what it means for your future."
More from Liz Weston:
VIDEO ON MSN MONEY
"Her partner lost a job in information technology and has been struggling ever since to find work that would pay as well."
That's one of many problems with people since the economy tanked. I know a few people who lost very good jobs/careers when it did, and they are out looking for jobs that pay at least the same or more than their previous occupation, while in the meantime they were bringing in nothing aside from petty unemployment checks (while they lasted). I have been there myself and I know that I would take whatever job I could get. Desperate times demand desperate measures!
Other than Bill Fleckenstein, none of the writers on MSN are independently wealthy - otherwise they wouldn't be espousing such "nonsense" and obvious advice such as "make more money" and "work until you are 95 years old"!
SRTdriver;Too bad you didn`t have any upbringing.I can disagree with being foul mouth.I
grew up in a cold climate but I was smart enough and rich enough to get away from snow.
It`s racist rants from your type that will make it easy for Dems to win elections.Keep up the
racist low class rants.
1. The Peace Corps. Let your retirement income grow for two years or more after retirement while you serve in the Peace Corps. That will be two years or more where your nest egg grows because you won't be touching it, plus you can invest your pensions during that two years, rather than living off of it. Plus, you will be on a two year paid vacation.
2. Look into veterans benefits if eligible -- especially medical care. If you are a veteran, it just might be a better option to forego Medicare Part B in favor of obtaining free medical care through the VA. It's not for everybody, but my local VA hospital is great. I save that $104.90 in Medicare premiums each month and get my medical, to include hearing aids, eyeglasses and dental, all free.
SRTdriver;Admit it, you`re just a bitter Republican too poor to get out of ratholes like NY.
McCain lost in 2008, but America won with the market up 90% with Obama.Your excuses
and bitterness are sad.I left the GOP because of losers like you.Republican meetings were
like KKK rallies.Sorry you missed the bull market.I didn`t.Don`t you get tired of being on the
We're at 71% of JFK's adjusted defense spending. Well of course we are, the Cold War is over.
But we're at over 250% of his overall spending. It's not the guns, it's the butter.
Most folks working today has had the benefit of the government commandeering 15% of their W2 earnings and investing it for them on their behalf. Unlike earlier generations that only had 6% or even 2% of same taxed away as payroll tax.
Can't wait to see what they did with that money. Land Grant Teachers Colleges? Panama Canal? Hoover Dam? TVA? WWI? WWII? Korea? Interstates? Mercury/Gemini/Apollo Moon program? Something like that? No, wait a minute-- each and every one of those was commensurate with or prior to JFK and his $100B of federal spending overhead...over half of which was for defense at the peak of the Cold War. That population and inflation adjusts to maybe $1400B to $1500B today...and we're at $3800B/yr. Surely there is something that this government is doing with that -extra- $2.3T/yr above JFK's fully adjusted number that we will all remember warmly in five months...much less five generations from now. What are we doing that is going to make that pre-$100B list above? Because it was JFK's America with the economies that roared. Feel stimulated yet?
SRT DRIVER:Maybe you liked the market down 37% with Bush, but I like the market up
90% with Obama.Work until you`re 90 with a Republican President.I retired early because
of Obama`s policy.Too bad you`re not man enough to admit you`re wrong.
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