Half of boomers have done nothing to prepare for retirement. That’s a polite way of saying we screwed around for so long – well into our 40s – that any hope of a reasonably comfortable retirement is far out of the question, and most of us have given up.
The maximum payout at age 62 is $2,158 – around $25,000 per year – which works out to an hourly wage of $13.48. That’s not much more than minimum wage in Washington or California.
Boomers estimate their average cost of living in retirement to be somewhere in the area of $45,000 a year. Where the other $20,000 is going to come from to pay the bills of millions of people is a mystery to everyone.
Between physical limitations in old age and rampant age discrimination, the idea of working to 70 or older to fill in the gap is not realistic.
So half of us not only didn’t do anything to prepare for retirement when we were working but now – as we take Social Security too early and act as if we can work forever – it’s clear we’re doing everything wrong again. Unless you’ve already reached retirement age with nothing saved, there are things you can do to fix this. The situation is far from hopeless.
But the first step can be as simple as eliminating meals out. The average person will save $36.75 per week by eating at home. That seems really low to me, but even that amount for a couple adds up to almost $300 per month.
If you’re 50 years old and can make it to full retirement – age 66 or 67 – investing those savings at a very reasonable 7% yearly growth, your weekly $36 per person can become $116,139.
That’s just by giving up eating out.
How about the savings difference between buying new and used cars? The average new car loses 20% of its value when you drive off the lot and 10% per year after that. And those are conservative numbers.
A $25,000 car loses $7,180 in just three years. (In my experience, it’s really closer to a $10,000 loss.)
If you can reduce that by half with a used car, saving $3,590 every three years over the 17 years to full retirement age, it adds up to $20,343.
That annual amount – $1,196 – growing at 7% until age 67 adds up to another $43,389.
We’re at $159,528 in savings for your nest egg.
The interest charged by credit cards averages 19.24%, and the average boomer carries $7,041 in credit card debt. Just the savings on interest amounts to $1,354 per year.
At 7%, $1,354 per year would grow to around $48,971.
We’re at $208,528.
Speaking of debt – boomers are also carrying more mortgage debt into retirement than any previous generation. Refinancing at today’s lower mortgage rates can save you a small fortune over 17 years.
The annual interest saved per year by refinancing from a 7% to a 4.125% mortgage falls in the area of $6,000. Over 17 years, that adds another $216,947 to your nest egg.
That’s $425,475 in total!
Just the required minimum distribution at age 70 1/2 on that amount is $16,055 ($425,475 / 26.5). That, added to the maximum Social Security payout at age 62, will put you almost within $4,000 of what boomers are reporting to cover their estimated annual expenses in retirement: $45,000.
There is money to be put aside.
Are the choices I have described difficult to make? You bet! But they only get more difficult as we age, and they are nothing compared with spending 20 to 30 years living in poverty or relying on your kids to help you make it.
Once you give your money to another person, it’s gone forever. It’s time to get smart about our spending. Most of us have no choice.
Even if you can make only half of the adjustments I described here, you’ll be light-years ahead of the poverty-in-old-age power curve.
Make the shift today! Reduce your debt, cut back on your spending and put what you save into conservative, long-term investments.
You don’t have to be broke in your 80s.