April 28, 2010
What would you do if you had NO money for retirement?
Chloe asked:
I have a few friends in their 40s and 50s with no retirement plans whatsoever. They tell me they live check to check and every cent is spoken for. Checking account <$1000, no savings account. One is self employed so can't have employer funnel contributions before being paid.
I have a few friends in their 40s and 50s with no retirement plans whatsoever. They tell me they live check to check and every cent is spoken for. Checking account <$1000, no savings account. One is self employed so can't have employer funnel contributions before being paid.
How can they live later on? Will they be homeless, or can they get subsidized housing? What about food? Social Security is a pittance and will likely be going down, not up, so I am wondering what will happen to these people when they can't work any more.
Jaylene
Comments on What would you do if you had NO money for retirement?
Donovan
My thought is that they will be working for the rest of their lives. I used to work at Home Depot with 65+ year old women who should have been off of their feet - but they HAD to work.
Perhaps they will try to save something as they see the economy going south. It’s definitely a wake up call to all of us.
Ashlee
One’s in 50’s MAY be OK. The meltdown you are seeing in the market and banking is small potatoes to what is coming when social security, and medicare crashes. Social security is an entitlement. Meaning there is no account with your name and contributions safely locked away.
Social Security is tax funded. You pay into it now, and those retired receive what you are paying in. Unfortunately, those under 50 paying in now, will have to rely on future generations paying in. Simply put, there will not be enough workers in a generation or two, too support those under 50 now, when they retire. 401K, IRA’s pensions are going down. So likely unless you have saved and invested elsewhere, they will be working all their life, as social security won’t be there and the government is broke.
Ernest
they’re screwed. and they have only themselves to blame.
Arnav
These are people who will have to work until they die. Unless they are planning on a nice inheritance, which may never come because the family member may spend it all on long term care, then they will have no choice but to work. They may “think” that every cent is spoken for but I doubt that it really is. Do they have car payments? Sell the new car and buy used. I never buy new cars because they lose so much value. I only buy used cars and I always pay cash. I just bought a fully loaded 2003 Ford Taurus last week for less than $7K.
Are they having lunch out every day? Bringing your lunch can save you hundreds of dollars every year. Do they shop with credit cards? How much debt do they carry? All of that debt costs interest that must be paid. That interest payment could be going into savings instead. Are they always wearing the latest fashions? How often do they go out to dinner? Or order pizza? Or go on vacation? It is all a matter of the choices we make.
The decision to “pay yourself first” is the most important. After that you just need to make your budget fit the rest of your income. Never spend more than you make. If you can’t pay cash for it, you probably don’t need it. Making a budget is also important. The budget should be made the week BEFORE the paycheck comes. Every penny of income should be accounted for in the budget with saving, food, utilities, and housing being the first four items. Those are the only “must haves” or “needs” in the budget. Everything else is a “want” and a person has to want to save money or they never will. It will probably mean cuts but do you really need to get your nails done every week? What about twice a month instead? That is another $50 that could go for retirement. Do you have to get a latte every day? What about twice a week instead? Or once a week as a special treat? After all, isn’t $30-$35 per week ($1500-$1800 per year) a lot to spend on coffee? Wouldn’t that $1500 compound beautifully tax free in a Roth IRA? Do you have to pay to get the car washed every week? Washing it yourself not only saves money but is good excercise.
Your friend who is self employed has the best opportunity to save because business owners have so many more options to put away more tax free and tax deferred money than us mere wage slaves.
I’m sorry, I digressed from your questions.
1. They will live on much less because they saved much less.
2. Unless they paid off their home and can afford the taxes then they will have to sell their homes.
3. They will not be able to get subsidized housing because of the money they have from selling their home. They will have to “spend down” that money first.
4. Food stamps are possible and there are always the church “pantry” food give away programs and soup kitchens.
It is not a very pretty picture is it? But it all comes down to choices.
A 25 year old who contributes $5,000 per year ($416.67 per month) to a Roth IRA averaging an 8% per year return will have $1.3 million tax free at age 65.
A 45 year old who does the same thing will haev $247K tax free while a 55 year old will have $78K tax free. The magic of compounding interest at work.
The moral of my story is Save Early and Save Regularly.