You're 55 and Haven't Saved a Dime

RETIREMENT

Ginger Applegarth

Decision Center

..........................................

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Ask the Experts

ou've hit the magic number - 55. It's magical because two identical digits are considered good luck. But how lucky are you at this point? If you're smart, you're thinking about both your age and your assets. Hopefully, your assets are many multiples of your age!

But what if you haven't socked away money for retirement? Don't feel bad, because you're not alone. In 1992, the median amount of financial savings for 45- to 54-year-olds was $24,700.

You may have had the burden of college tuition, unexpected medical expenses, job loss, bad investments, or a plethora of other events that either drained your assets or prevented you from building up any in the first place. Or you may have just been leading the good life until now. Don't throw up your hands and say, "It's too late - why bother?"

Wouldn't you rather end up with some assets than none at all? And the beauty of compound interest means that the sooner you start socking away money, the faster it will grow. Here's how to do it:

1. Figure out what you'll have and what you'll need.

Use Decision Center's retirement income and retirement expenses calculators. The results will be sobering, but you'll probably be motivated to make big-time changes - fast.

2. Put every possible dollar you can into tax-deductible retirement plans.

This includes any plans your employer sponsors, as well as your IRAs. March into your employee benefits office and sign up for the maximum deductible contribution you are allowed based on your income.

First, start contributing to any plan to which your employer matches the contributions. This automatically grows your money by 25 percent, 50 percent and sometimes even 100 percent, depending upon how much your company will match. If you have any tax-deductible money left over, put it in another pre-tax plan offered by your company, or open your own IRA.

Self-employment income is especially great to have because you can open a Keogh and invest tax-deductible money in it, regardless of what you're putting in other plans. If you have little or no retirement assets, chances are you're better off having a tax-deductible IRA instead of a Roth IRA (where the benefits are tax-free but you don't get to deduct the contributions now). The Roth is better when you expect a higher income at retirement. Unless the retirement-income calculator reminded you that you should be getting a large pension, a Roth IRA probably is not for you.

You may be panicking, thinking, "How will I pay the mortgage?" You will. Just wait until we get to step number three.

3. Make a zero-based budget.

A zero-based budget means you start with the absolute essential expenses, and then add expenses from there until you run out of money. Guess what your first item should be? That's right: retirement plan contributions. Then come your mortgage and other debt payments, and other required "fixed expenses." Fixed expenses are those that you don't have much control over, although you may have more control than you think.

Next, add "discretionary expenses," ones you have some control over, to your budget. Do you run out of money before you reach entertainment? That means you better cut back on entertainment. This sounds Draconian until you remind yourself that your choice is either a) entertainment now but no money at retirement, or b) living a simpler lifestyle now as you invest so you're able to enjoy yourself at retirement. When you were 25 or 35, it may have been a difficult tradeoff. But now that you're staring retirement in the face, this should be a no-brainer.

4. Take a hard look at your current work situation.

Could you be getting paid more elsewhere, or be working for a company that has better retirement benefits (especially a pension plan, which benefits older workers)? Now that you know how tight retirement might be, is it worth it to look for a second job? If you're 55, your children probably no longer require constant supervision. Your non-working spouse might be able to consider a job outside the home.

5. Start a business on the side.

There are many benefits to this, especially if you're close to retirement. First, you can usually contribute up to 25 percent of your self-employment income to a tax-deductible Keogh plan even if you're already putting money in another plan. There are none of those nasty income limits that you have with IRAs. The only restriction is that the total of all the contributions from all sources for the year can't be more than $30,000.

The second benefit is that your new knowledge and experience makes you more valuable to your current employer. Third, if you're laid off or experience job discrimination in terms of a pay raise, you have another income. Also, once you're officially retired from your primary job, you have a nice business that can continue to generate income. It gives you some great tax deductions and still allows you to sock away money for retirement, whenever you finally decide you can afford to slow down.

6. Forget the standard retirement age of 65.

You'll probably have to work past that point, and a lot of people want to anyway. A surprising number of people retire and then return to work a year later because they can't stand the boredom. The longer you work, the more money you can save and the fewer non-income-producing retirement years you'll need to finance.

7. Plan to sell your house and buy a smaller one or get out of the real estate market altogether.

This is especially true if you're planning to move to a retirement community with lifetime services. If you need your home equity for living expenses, you can always take a reverse mortgage.

8. Be realistic in your projections and your dreams.

Look at each of the above items, and use retirement calculators to "what-if" the results of making changes to increase your retirement savings (and therefore flexibility). Once you see the results, start thinking about how you can live in retirement with that amount of income and assets.

There is nothing worse than being retired and broke. It's too late to start your life over again and save all that money you spent on things that didn't really matter. Every dollar you save now is one more dollar of flexibility at retirement. And given the uncertainties of Social Security, inflation, and medical costs, flexibility is probably the best thing that money can buy in the long run.

If you have little or no retirement assets, chances are you're better off having a tax-deductible IRA instead of a Roth IRA.

Start a business on the side. There are many benefits to this, especially if you're close to retirement.

What are the best strategies for funding retirement?

Articles

Everything You Need to Know About the Roth IRA
Retirement Planning for Public Employees
Reverse Mortgages Offer Current Cash
Balancing College Tuition and Retirement Needs

Next Steps

Go to Money's Lifetime Planner

	RETIREMENT

	You're 55 and Haven't Saved a Dime Ginger Applegarth Decision Center

.......................................... WEB LINK Ask the Experts	ou've hit the magic number - 55. It's magical because two identical digits are considered good luck. But how lucky are you at this point? If you're smart, you're thinking about both your age and your assets. Hopefully, your assets are many multiples of your age! But what if you haven't socked away money for retirement? Don't feel bad, because you're not alone. In 1992, the median amount of financial savings for 45- to 54-year-olds was $24,700. You may have had the burden of college tuition, unexpected medical expenses, job loss, bad investments, or a plethora of other events that either drained your assets or prevented you from building up any in the first place. Or you may have just been leading the good life until now. Don't throw up your hands and say, "It's too late - why bother?" Wouldn't you rather end up with some assets than none at all? And the beauty of compound interest means that the sooner you start socking away money, the faster it will grow. Here's how to do it: 1. Figure out what you'll have and what you'll need. Use Decision Center's retirement income and retirement expenses calculators. The results will be sobering, but you'll probably be motivated to make big-time changes - fast. 2. Put every possible dollar you can into tax-deductible retirement plans. This includes any plans your employer sponsors, as well as your IRAs. March into your employee benefits office and sign up for the maximum deductible contribution you are allowed based on your income. First, start contributing to any plan to which your employer matches the contributions. This automatically grows your money by 25 percent, 50 percent and sometimes even 100 percent, depending upon how much your company will match. If you have any tax-deductible money left over, put it in another pre-tax plan offered by your company, or open your own IRA. Self-employment income is especially great to have because you can open a Keogh and invest tax-deductible money in it, regardless of what you're putting in other plans. If you have little or no retirement assets, chances are you're better off having a tax-deductible IRA instead of a Roth IRA (where the benefits are tax-free but you don't get to deduct the contributions now). The Roth is better when you expect a higher income at retirement. Unless the retirement-income calculator reminded you that you should be getting a large pension, a Roth IRA probably is not for you. You may be panicking, thinking, "How will I pay the mortgage?" You will. Just wait until we get to step number three. 3. Make a zero-based budget. A zero-based budget means you start with the absolute essential expenses, and then add expenses from there until you run out of money. Guess what your first item should be? That's right: retirement plan contributions. Then come your mortgage and other debt payments, and other required "fixed expenses." Fixed expenses are those that you don't have much control over, although you may have more control than you think. Next, add "discretionary expenses," ones you have some control over, to your budget. Do you run out of money before you reach entertainment? That means you better cut back on entertainment. This sounds Draconian until you remind yourself that your choice is either a) entertainment now but no money at retirement, or b) living a simpler lifestyle now as you invest so you're able to enjoy yourself at retirement. When you were 25 or 35, it may have been a difficult tradeoff. But now that you're staring retirement in the face, this should be a no-brainer. 4. Take a hard look at your current work situation. Could you be getting paid more elsewhere, or be working for a company that has better retirement benefits (especially a pension plan, which benefits older workers)? Now that you know how tight retirement might be, is it worth it to look for a second job? If you're 55, your children probably no longer require constant supervision. Your non-working spouse might be able to consider a job outside the home. 5. Start a business on the side. There are many benefits to this, especially if you're close to retirement. First, you can usually contribute up to 25 percent of your self-employment income to a tax-deductible Keogh plan even if you're already putting money in another plan. There are none of those nasty income limits that you have with IRAs. The only restriction is that the total of all the contributions from all sources for the year can't be more than $30,000. The second benefit is that your new knowledge and experience makes you more valuable to your current employer. Third, if you're laid off or experience job discrimination in terms of a pay raise, you have another income. Also, once you're officially retired from your primary job, you have a nice business that can continue to generate income. It gives you some great tax deductions and still allows you to sock away money for retirement, whenever you finally decide you can afford to slow down. 6. Forget the standard retirement age of 65. You'll probably have to work past that point, and a lot of people want to anyway. A surprising number of people retire and then return to work a year later because they can't stand the boredom. The longer you work, the more money you can save and the fewer non-income-producing retirement years you'll need to finance. 7. Plan to sell your house and buy a smaller one or get out of the real estate market altogether. This is especially true if you're planning to move to a retirement community with lifetime services. If you need your home equity for living expenses, you can always take a reverse mortgage. 8. Be realistic in your projections and your dreams. Look at each of the above items, and use retirement calculators to "what-if" the results of making changes to increase your retirement savings (and therefore flexibility). Once you see the results, start thinking about how you can live in retirement with that amount of income and assets. There is nothing worse than being retired and broke. It's too late to start your life over again and save all that money you spent on things that didn't really matter. Every dollar you save now is one more dollar of flexibility at retirement. And given the uncertainties of Social Security, inflation, and medical costs, flexibility is probably the best thing that money can buy in the long run.	If you have little or no retirement assets, chances are you're better off having a tax-deductible IRA instead of a Roth IRA. Start a business on the side. There are many benefits to this, especially if you're close to retirement.
	What are the best strategies for funding retirement?
	Articles \|

	Everything You Need to Know About the Roth IRA Retirement Planning for Public Employees Reverse Mortgages Offer Current Cash Balancing College Tuition and Retirement Needs

	Next Steps \|

	Go to Money's Lifetime Planner Illustration by Terry Allen Copyright 1998 Microsoft Corporation