My mailboxes, both e- and snail, bring me every turn of the demographic wheel. Today, I’m hearing from those of you who woke up at 50 and said “Wow, I’m not 30 anymore.’’ You knew you weren’t saving for the future. But the future always seemed so far away.
Many boomers have saved plenty, through their own patient efforts or through the dumb luck of owning a home, a 401(k) or a stock-option plan whose value soared.
But everyone hasn’t been in the game. Maybe you spent instead of saved. Maybe you couldn’t earn enough, or your business failed. Maybe a midlife divorce wiped out your assets or support. Maybe you burned through your savings to pay a sick child’s medical bills.
Still, there’s an upside to hitting 50 with little or nothing saved. Your options clarify themselves. You stop telling yourself that life might spring some sweet and lucrative surprise. It gets hard not to save, because the danger eats at you. Even now, you can still shape the retirement that you both desire and dread.
Late bloomers: But how? NEWSWEEK asked that question in an all-points bulletin to financial planners last week. “Tell us about your late bloomers,’’ we asked. “Where do they go from here?” Their general message came through loud and clear:
Think about why you’re in this bind. Sometimes it’s bad luck. More often, you saved too little because you spent too much, says planner Mary Beauchamp of Norfolk, Va. That may sound self- evident, but until you accept it, you won’t be saving enough in your 50s either. To change the future, you have to change your habits and attitudes and–yes–spend less.
You can’t rescue yourself by hurling all your money into stocks. “I’ve seen people get that fire in their eye. They have to save, they pick three stocks that have done really well in the last two years and that’s how they get into trouble,’’ says planner Ginger Applegarth in Winchester, Mass. Why not just feed your money to squirrels?
Aggressive investing gives you a shot at high returns, but at the risk of a large loss. “Just because you have greater need doesn’t mean you put more of your money on the blackjack table,’’ says planner Gary Schatsky of Objectiveadvice.com in New York City. Your problem is insufficient assets; why would you risk losing half of the small amount you have? What’s more, late savers haven’t had much stock-market experience. They’re more apt to make mistakes, and to panic when the market drops. “At 50-plus, poor performance can be psychologically devastating,” says planner Karl Graf of Wayne, N.J.
You need a plain-vanilla system: automatic deductions from every paycheck, directed into mutual funds. For people in their 50s, planner Thomas Rogers in Portland, Maine, typically recommends that stocks not exceed 50 to 75 percent of assets.
There’s only one way to make up for lost time. Save more aggressively, rather than invest more aggressively. “Save until it hurts,’’ Graf says. Cut your spending, work longer or harder, work differently, return to paid work if you’ve been tending kids at home.
Right now, today, start putting 10 percent of your salary away. Maximize your tax-deferred savings, then start regular accounts. Don’t waste time nattering over a budget. Save the money, then fit your spending to what’s left. Next year try saving 20 percent. (And don’t sneak extra spending onto your credit card. You also need to pay off debt.)
Tardy savers won’t be able to spend as much in retirement as other people will. “So think about reducing your standard of living now to prepare for a sustainable lifestyle,’’ says planner Paul White of Manassas, Va. Spending cuts give you more money to save and ease the transition to the years when you’ll have to live on less. Among the options you might consider: sell your house, move to something smaller and use the proceeds to invest.
Most of the planners opposed the idea of borrowing against your house to raise money to invest. First, there’s no guarantee that your investments will do well. Second, a larger mortgage can add to your general level of stress, says planner Amy Noel of Boulder, Colo. Third, the game probably isn’t worth the candle. For example, say you take $30,000 out of your house, invest in stock-owning mutual funds and earn 2 percent more than your mortgage costs. Fifteen years later you’d retire with an extra $10,376–small potatoes, considering the risk, says planner Dennis Hebert of Syracuse, N.Y.
You may have more resources than you think. In a useful new book called “The Retirement Catch-Up Guide,” author Ellen Hoffman suggests some places to look. For example, list all your past employers and find out if any of them owe you a pension. Ask if there’s a pension at your current job (many workers don’t know). Find out the size of your likely Social Security benefits (www.ssa.gov or 800-772-1213). A few more years of work will bring those benefits up.
How much do you need to retire? There’s no quick answer. You have to pull together a probable retirement budget, subtract what you’ll get from Social Security and perhaps a pension, estimate your lifespan and consider what you might earn on your savings.
Financial planners can show you realistically what’s ahead. Do-it-yourselfers should try Financialengines.com–where you estimate how much you’ll have to save–and Troweprice.com/ric–for people ready to retire who want to know how much they can afford to withdraw from their savings each month. Both sites help you adjust your assumptions to improve your chance of success.
Get another group of friends. Planner Anthony Ogorek of Buffalo, N.Y., offers this advice, only half in jest. You’ll find it hard to save if you run with a free-handed crowd. Also, explain to your kids that you’re dialing back–just in case they’ve been thinking of you as the family bank. From this point on, you need those dollars for yourself.
