If you are still working, you are in a great position to improve your retirement picture because you still have an income to put toward a variety of goals.
For many of you, saving more is a top priority, yet you are struggling to come up with the extra dollars you wish you could be saving.
The solution, my warrior friend, is really quite easy. Stop spending so much. Don’t you “Oh, Suze” me. In this article, I am going to expose all the ways you are spending more than you need to. I do it with love, and with the hope that you will be excited to consider how changing your spending can give you the money you need to polish up some of your retirement goals.
While you may be focused on the need to save more for retirement, I am most concerned that you pay off all your debts before you retire. In the next articles, I have a detailed explanation of why I want you to pay off your mortgage before you retire if you intend to stay in your home. But I know for many of you there is also credit card debt lurking, and car payments. That has got to go. Carrying debt into retirement will make it impossible to live the ultimate retirement. How can you relax and enjoy yourself if you must spend a chunk of your retirement income each month to make expensive debt payments? In this chapter we are going to explore how to live below your means but within your needs. Does that sound like punishment? You couldn’t be more wrong.
Not only will living within your means leave you with more money to put toward your financial goals, but it will also make your life easier in retirement. If you reduce your monthly spending by $500 or $1,000 a month today, that’s $500 or $1,000 a month you won’t need to generate in retirement. Spending less today reduces your retirement overhead. Not exactly punishment, when you think about the long-term payoff, right?
Your remaining working years are also a time when you can explore some smart retirement options. I know many of you have no plans to stop working. I think that’s a great strategy; I am all for working until at least 70. But it also comes with risks that you need to plan for today. Starting with the fact that management may not share your enthusiasm for your continuing to work at your current job. And for those of you in your 50s (and 60s) and in good health, I want you to give serious consideration to whether a long-term care insurance policy makes sense for you. Even with rising premiums, once you do the math, they can still be a cost-effective way to protect yourself and your loved ones from the possibility of needing to spend large sums of money on your later-life care.
THE MOVES THAT YOU HAVE TO MAKE WITHIN YOUR WORKING YEARS
Prioritize paying off all debt before you retire:
When I ask people what would make them feel financially secure, 9 times out of 10 the answer is being debt-free. I couldn’t agree more. Especially in retirement. If you still have a mortgage and are carrying high-rate credit card debt and maybe a car loan (or two), you are putting a lot of pressure on your finances to be able to pay all those bills and still have plenty to cover your other needs—and let’s hope plenty of wants too!
I bet you’re a bit skeptical that you can pull this off. It’s not as if you haven’t wanted to tackle your debts for a long time. But you just cannot seem to find a way to make it happen.
Remember what I said earlier about your mindset: Everything is possible if you believe in yourself. Before you start down the road of negative thoughts, slam on the brakes. You most definitely can tackle your debt if you are ready to summon your inner warrior and take a fresh look at your spending habits.
Embrace living below your means:
So how are you going to become debt-free?
By adopting a mindset where your goal is to live below your means but within your needs. If you are ready, to be honest, you know that your spending sometimes veers off to fulfilling wants more than needs. For example, you need a car. But let me ask ”
you a question: Did you actually need to spend what you did in that car? Or did you just give yourself permission to spend more for something you wanted instead of buying a less expensive option?
Are you receiving this as if I’m asking you to eat your least favorite vegetable? Well, I am going to ask you to change that mindset. This approach is not something that should depress you, or feel like a burden. When you can get to the point where you live below your means, you are giving yourself a shot at financial freedom. Do you know what should excite you? The ability in retirement to have the money you need to live the life you want, rather than be weighed down by big, expensive debt payments. Are you with me?
Save more for retirement . . . in the right accounts:
While you are still working, you can make it a priority to save even more in your retirement account.
First, let’s review what you could be saving in retirement accounts, and then let’s talk about which retirement accounts might make the most sense at this stage of your life.
In 2020 anyone who is at least 50 years old can contribute $26,000 to a 401(k) or 403(b) plan. In addition to those workplace plans, you are eligible to save $7,000 in an Individual Retirement Account (IRA). (Those limits are adjusted to keep pace with inflation.) And of course, you can always save more in regular taxable accounts.
Anyone in their 50s or 60s today has most likely done the bulk of their retirement investing in a pretax traditional 401(k) or 403(b) or a pretax traditional IRA. (Please note that what I say about a 401(k) plan below also applies to a 403(b) as well as the Thrift Savings Plan for federal employees.)
When you retire and withdraw money from these traditional accounts, every dollar is taxed as ordinary income. Plus, if you were born on or before 6/30/49, you must make withdrawals by April 1 after the year you turn 70½, or 72 if you were born after 6/30/49. If you receive a pension, that income is taxable as well. A portion of your Social Security benefit may also be taxed.
Have a plan to work longer:
I know many of you dream of retiring around 65. However, I have to tell you: Retirement in your 60s isn’t all it’s cracked up to be. Sixty-five is the new 55. You’re still young! You don’t feel old—you still want to be useful and contribute to society. So why not just stay in the game longer?
Can you adjust your goal and plan to retire at 70 or later?
Yes, you read that right: I want you to plan on working until you are 70. Maybe not in a high-powered, mega-demanding position. But working at a job that brings in some income.
It’s just this simple: The longer you work, the more time you have to let your retirement funds grow. The longer you have a paycheck coming in, the longer you have to pay off the mortgage on your home.
If you retire at 62, or before, and live into your 90s, you could spend as much time in retirement as you did working. That’s a very long time to ask your savings to support you. If you work until 70, you will likely still have plenty of time to be a full-time retiree.
Stay relevant at work:
A survey by the Transamerica Center for Retirement Studies reported that many people near retirement want to keep working longer. But in the same survey, a large percentage of those 50-something folks admitted they weren’t doing everything they could to shine at work.
As I write this in late 2019, our economy is still growing at a solid pace. But recessions are part of the normal cycle. When the next one hits, employers will start to cut jobs. When you are older and just coasting, you become an easy target for a layoff.
I appreciate that there is no defense for ageism. But don’t make it easy for your employer to fall into that trap. If you are a rock star at work, you likely won’t be at the top of the layoff list.
Even if you are laid off, if you have stayed up to speed on developments in your field, and can work with the latest technology, you will find it that much easier to hunt for another job.
There are so many ways to keep up. Do you take advantage of every on-the-job training session offered? If you know you are rusty, enroll in an online class that you can work through on your own schedule. (Check out sites such as LinkedIn Learning, Udemy, and Coursera.) Prefer a real class setting? Look for classes at your local community college.