How to Avoid Retiring Broke (Part 2 of 3)
Ascetic (as· cet· ic): characterized by or suggesting the practice of severe self-discipline and abstention from all forms of indulgence.
If you’re in your 50s and are NOT saving so much money you feel like you’re living a pauper’s life….
Then you’re NOT saving enough.
You’re going to be clipping coupons, working as a Walmart greeter or sponging off your children until the day you die.
A Stark Reality for Retirees
This is the second installment of a three-part series that outlines the most important financial moves you should be making in your 40s, 50s and 60s.
This guide will help you set yourself up for financial success when you retire.
For 50-somethings, retirement is not a distant dream. Retirement is just around the corner.
The problem is most Americans are financially ill prepared for it.
According to a 2018 study by Northwestern Mutual, 21% of Americans have ZERO saved for retirement and 10% have less than $5,000 in savings. And about one-third of baby boomers have somewhere between zero and $5,000 saved for retirement.
Look, if you want a comfortable retirement, you’re going to have to live like an ascetic monk today. Or else you will be living like a monk in your 70s and 80s. And you won’t have a choice about it.
5 MUST-DOs to Secure a Comfortable Retirement
Tip #1 — Build a $10,000 Rainy Day Fund: Last week I said that you needed to accumulate a $1,000 emergency fund during your 40s. Now that you’re 10 years older and hopefully 10 years wiser, you need to step that up to $10,000.
The purpose of a rainy day fund is to cover unforeseen expenses, like a medical expense or car repairs. Having such a fund can be the difference between a bump in the road and complete financial disaster.
You’re an adult now — get it done.
Tip #2 — Get Debt-Free While You’re Still Working: There are two kinds of debt: (1) good debt, like a mortgage or (2) bad debt, like credit cards and auto loans.
The less debt you carry into retirement, the less of your limited retirement income will be siphoned off to service that debt. Make a serious dent in paying off your debt while you still have a steady paycheck coming in.
At a minimum, make sure you have paid off 100% of your “bad debt” before you retire.
Tip #3 — Supercharge Your 401(k): The most you’re allowed to contribute to a 401(k) is 15%, up to $19,000 a year. But since you’re over 50 years of age, you are allowed to sock away an extra $6,000 under a “catch-up” provision.
According to the U.S. Census Bureau, only 32% of Americans put money into a 401(k). And only 14% of savers age 50 and older utilize the catch-up contributions, according to Vanguard. And the 50-somethings that are saving have saved an average of only $129,000. That’s not enough.
Look, you need to save somewhere between seven–10 times your desired retirement income. If you need $50,000 a year to live during your retirement, you need to save $350,000–500,000.
You say you can’t afford to put $24,000 into your 401(k)? Wrong. Everyone with a job can. But most people like to drive nice cars, live in a beautiful home, eat out at restaurants and otherwise live too well today at the expense of a comfortable retirement.
Stop drinking $4 lattes, stop going out to restaurants, drive the car you already own into the ground and learn how to staycation instead of vacation.
Tip #4 — Close the Bank of Mom and Dad: Children have a way of sticking their fingers in your wallet even after they finish college. I’ve heard hundreds of stories of parents “loaning” money to their children for home down payments, seed money to start a business or income replacement for periods of unemployment.
The problem is that these “loans” to your children can destroy your retirement. A Merrill Lynch study found that two-thirds of people age 50 and older are helping family members, and another study from Ameriprise found giving money to adult children is one of the top four time bombs destroying retirement.
All of us love our children, but don’t sabotage your retirement security in the process of helping them.
Tip #5 — Buy Stocks, Not Bonds: Retirement is not a brief period. Heck, retirement is going to last longer than you may think. With life expectancies increasing, you’ll likely spend around two decades in retirement.
That means you need to act and invest like a long-term investor, and that means stocks, equity mutual funds and ETFs. Do NOT shift your savings into bonds and short-term savings vehicles (CDs, money markets) as you get closer to retirement. Stay fully invested in the stock market.
That doesn’t mean you should buy just any old stocks. You need to load up on high-quality blue chip companies that have long histories of paying growing streams of rising dividends.
Those are exactly the type of stocks that I recommend in my Infinite Income service and are the ideal way to both grow your money and generate a high retirement income.
Here’s to growing your wealth,
Chief Income Expert, Mike Burnick’s Wealth Watch