Here’s an email I recently received from a reader:
I have been reading your emails. You see I always thought I had a good head on my shoulders and made good decisions but I am seeing now how wrong I was.
You see I have not been thinking about the future and have not been making meaningful goals and now I am in serious trouble and don’t have much time to fix it. I will be 50 yrs old this month (August) I only have five more years in my job and I am not prepared for retirement AT ALL!!!! I am not married and do not have a husband or children and yet I am not financially prepared to retire.
My mistakes were that I did not try to pay off my mortgage as soon as possible. It was my intention at first, however when the guy at the mortgage company refused to take my first payment and told me I am not allowed to do that until about a year or two years after, I forgot about it (big mistake). In my job I was allowed to apply for over time and I rarely did. I loved my job and use to thoroughly enjoy going to work and I use to say money is not everything and I was just happy to have a job. Now things are really going bad for me on the job and I can no longer apply for the overtime I failed to apply for. If I had applied for all my overtime when I supposed to I would have paid off my mortgage a long time ago. I also got a credit card and use to run up thousands and thousands of dollars on it. (I have gotten rid of it since).
Now reflecting on where I am at. I do not have much money saved. I have my own home and have been doing some work on it. I paid off all my other debts and trying to completely pay off my mortgage. I did not want to take a loan to do the work on the house so I took money I got as back pay and almost all my emergency savings to do the work. The work is still not completed but I am determined not to borrow any money to do it. Beside my emergency savings I had another savings account and I took most of the money from that and paid a lump sum on my mortgage. However I still have a good way to go again. My main focus right now is to pay off my mortgage AS SOON AS POSSIBLE.
I don’t have any investments at all and I have very little savings. My country does not have a 401k or IRA. However I will be checking to see what there is that is similar.
I am in a mess. I have acknowledged my mistakes and working on correcting them. I never had any financial education. I never knew anything about money other than earning it, saving some and spending some. But to use it to make it grow, I was and still is totally ignorant. I do not know anything about stocks and bonds. I keep hearing about them but don’t know much about them. Can you help me salvage what I can for retirement?
I offered her some advice and also said I’d post the email for ESI Money readers to offer suggestions.
Please leave your thoughts in the comments below.
Mike H says
At her age and with her time horizon, she doesn’t need to worry about investing so much as increasing her savings rate as much as she can. Is she able to take on more overtime at work during these years?
On the expense side, can she do anything to cut her food and transportation costs? Is there a way she could lower her housing expenses by creating a space for a renter, provided that it is a safe and respectful arrangement? Can she cut her entertainment and all other expenses. Like starting from a zero budget and working up from there.
If she can make drastic action then even with 5 years of working she should be able to build up a big buffer. With a savings rate of 67%, 5 years of working would equate to 10 years of living expenses banked.
It will be tough given what she is accustomed to (spending nearly all her income) but by taking these steps she can make up for lost time.
-Mike
Debbie says
Wow, quite a difference from the usual “how I became a millionaire” that we read here.
My advice is to become frugal in all aspects of life and don’t plan to retire at 55, if this one has to end get another job. I will share what I did when unemployment hit. 1) Stop all unessential monthly outgoes….newspapers, magazines, cable T.V., expensive phone plans, gym membership, lessons, massages, 2) Stop all outside grooming help….cut and dye your own hair, do your own nails, 3) Stop all outside home maintenance…do your own housework, spray for pests yourself, mow and care for your own lawn 4) Stop all expensive dining…shop at Wal Mart or Aldi, bring your lunch to work, eat healthy meals at home and stop all treat habits such as fancy coffee, snacky things, soda’s etc…besides being unnecessary, these will cost you later in medical treatments due to poor health. 5) Buy your clothes at the resale shop. (I can afford any clothes I want now, but I still buy at the resale shop because I find such cute things so cheap, new clothes are so overpriced) 6) Buy high quality used cars that get good gas mileage .
I read a great book years ago called ” Get a Life, you don’t need a million dollars to retire well,” by Robert Warner. I learned alot. I don’t remember any specific advice but it made it happier. I can’t find it on my bookshelf, someone must have borrowed it.
getagrip says
First off, I don’t believe the lady should beat herself up so badly. Let’s look at what she has accomplished, she has a home, she had no outstanding debt besides the mortgage, she has a job and is supporting herself without incurring more debt and is apparently making enough of an income to allow for her to be able to save significantly. These are all good things and not everyone is smart enough to even get that far in life.
With respect to her current situation, yes, we can all look back and play woulda, coulda, shoulda and spend some time kicking ourselves about all the things we now think we should have done. However that ship has sailed, so the real issue is what does she do right now to plan for and enjoy her future. So with that I’m not sure about the rush to pay off the mortgage unless the idea is that in five years she will be out of a job and no longer be able to afford to carry the mortgage for any period of time. If that is the case, maybe keeping this particular home isn’t the best idea. Perhaps moving to a less expensive home and pocketing the difference may help her in retirement. Another option in keeping the home is thinking if there are some practical ways for the home to help her make money. This could be via room mates, renting out via airbnb or something along those lines.
I would wonder why she sees her job ending at 55, don’t know if that is something mandatory. Assuming for the moment it is a requirement, then she also should be considering having five years to look for and consider another job or career choice, be it part time or full time. There is no need to consider 55 unemployable especially if you can prepare and lay the ground work over the coming years.
Obviously she is aware of the need to cut back on expenses, verify how much she is spending now to determine what she should need when retired, etc. However without other financial details I don’t know what other general advice to provide.
FullTimeFinance says
The big one here is to try to extend working beyond 55 even if it means a different job. Five years is short, but if it becomes 15 to 65 then there is more then enough time. From there make a plan on where you want to be and work backwards on the steps needed to get there. Then go forward through the plan adjusting for realism. Then execute. Savings and earnings would be tops of the list. Other then that the questions are is there any govt age assistance program like social security? Any family or friends to leverage(say renting a room in the house or otherwise splitting costs). Stop unessential spending.
indio says
A few suggestions different from those above, but I agree wholeheartedly with comments about cutting spending down significantly and getting a roommate.
Firstly, find a second job. You need to supplement your income quickly. Let your neighbors know that you are available for babysitting, dog walking or even consider a job in Starbucks or wherever. Since you don’t mention that you are health isn’t good, I would focus on making this a top priority. Then save everything you earn from this job in an investment account. Do not put it towards paying off your mortgage! After you have a secure second job in place, look for a new primary job where you can earn more or the benefits are higher.
Secondly, you don’t mention what your mortgage interest rate is, but paying it off should not always be the priority. If you can earn more investing than paying down a 3-4% interest rate, you should consider doing that. I would not invest any more money in improving the house. Rarely do you get a 100% return on that money. If it is emergency repairs, then by all means do it, but do not improve bathrooms, kitchen, etc. In the US, you only get about 85% or less of your money back when you sell the house.
Thirdly, I would try to learn as much as possible about investment and social safety net in your country. You don’t say where you are from so it’s difficult to guess at whether you have social security benefits, which most countries do, or health benefits. Your company may have someone in the human resources department that could point you in the right direction or the bank where you have your mortgage may also have professionals there. If not, check with your local church. Be very careful about buying any investment products they are selling, because they usually have high fees and commissions. dont get talked into buying anything!! Just use it as a means to educate yourself.
If you consider working longer than 55, I think there is enough time to improve your financial situation, but you need to take action and not delay it!!
M15 says
It is difficult to give advise with such an unclear picture. If this person’s only debt is a mortgage, then that does not sound that bad to me. Assuming the balance is not that huge, I would recommend paying it off, but doing it in a responsible way. She can add one or two more payments a year, or figure out a yearly amount of principal she wants to tackle. As a single person, her expenses should be manageable.
Once the mortgage is paid and there is no other debt, she can focus on what her living expenses need to be and she needs to figure out how to fund those expenses, be it from work or other benefits. Again, does her country provide any pension scheme, free healthcare? depending on where she is, it could be very manageable.
Bottom line, she should not be hard on herself. the first step to addressing an issue is to identify it. she has and now she can do something about it.
Bruce says
You haven’t told us much except that you are in panic mode right now. You have spent your savings to make some repairs or improvements to your house and extra payments to your mortgage. You say that you will retire at 55 and that you don’t know much about finances. Your situation is not horrible, but it is challenging. To get out of panic mode, which can be hard to do, you need to make a plan.
To make an effective plan, some information needs to be gathered. One, if retiring at 55, will you get a pension? If so, get an accurate estimate of what it will be. That will be part of your income after you are 55. Two, does the country you live in provide some type of social security safety net? If so, that may be part of your income at some point after you are 55. Three, what are your expenses now on a monthly basis and can you reduce them slightly or aggressively? This information will tell you how much you can expect to save to invest now for the future and how much you will need after you are 55. Four, by summing up the pieces from 1 & 2 and comparing to 3 you will be able to determine if you will be comfortably or uncomfortably retired at 55 and beyond. This will help you decide if you need to continue working after 55 or not. Maybe you will only need to work part-time. There are a lot of options in the future. Explore these with an open mind. Just to throw some options out there, you could work part time at home or at a business, rent a room in your house to someone trustworthy, sell your house, move to live somewhere cheaper, or keep working at your current employer. Five, look at your current job. Can you take steps to improve your current job? Is it possible to get a different position at the employer? You could learn a new skill that they need which could lead to a promotion. If it is a dead end job with absolutely no hope of advancement or enjoyment with no pension available, it may be time to look elsewhere for meaningful employment.
Lastly you need to educate yourself on money management and financial investing. These are separate subjects. (It took me awhile to learn that last point.) With knowledge, you will be able to make some plans. Don’t expect or look for easy answers and quick results. Be wary of people selling or promoting things that will make you money in minutes. Keep asking for advice from people that you trust and take that advice with a grain of salt. It will be a long haul to get where you want. It’s not impossible, but it is not easy either. Trust yourself and continue to ask questions so you learn. Take a long term view in your decision making. Teach yourself new skills as you need them.
Making a plan that you believe in will help you prepare for the future that you want to live.
Jason says
Without further details I can only limited advice.
Since you mentioned you didnt have any financial cushion and wont be working for more than 5-10 years. I propose the following that will have the biggest positive impact on your life.
Housing:
This women is in the same position as you. I suggest you watch it for best practices: https://www.youtube.com/watch?v=3FUV-KG3tr8
2 options:
1: Sell the house. Take the proceeds and buy/build a smaller home in cash
with money left over to maintain it and pay taxes
2: Rent it out for a profit. Rent someplace as cheap as you can.
Transportation:
Start riding walking or riding your bicycle as much as you can. A car is just a very expense wheel chair to whisk you in comfort at a very high per KM cost taking your valuable money and never giving it back to you.
Food:
By learning to cook well you can create better tasting and healthier food than any restaurant can make you. DONT eat out.
The current course of actions have not worked for you. So obviously they need to change.
Bottom line is EMBRACE CHANGE.
Teri says
Some great questions and ones I’ve been working on lately myself. I am older also and already in retirement. I wanted to improve my situation.
You have already received many great suggestions and the one I settled on has not been mentioned so thought I would include it.
I had to go to the dreaded “budget.” I tried doing my own and with help from some of the programs out there, for several years without much progress. Then I found YNAB, another budgeting piece of software. The difference has been like night to day. It encourages me to come up with a plan, work with what comes up, and still make progress. It helps me question every dollar I spend, is it necessary or a want. If a want, do I want it more than I currently have that dollar assigned to, things like retirement, home renovations, or other specific savings jobs.
For investing, I would wait until you have several months worth of expenses, as an emergency fund, then find a place where you can invest a few dollars a month and increase as possible. I am currently using Betterment and there are many options out there. Find a good low fee, index fund to start with. You can get fancier after you have some built up if you want. I like index funds myself and have most of my investments in them.
A side advantage to budgeting is I know how much I spend each month and how much I will need to retire comfortably. This has helped in my planning by knowing what I need and what I want. This is a very important part of planning for retirement. How do you know how much you will need to save if you don’t know how much you spend?
Regarding your mortgage, I have a few questions. Just paying it off is a good goal, but is it best for you? This year, my investments have returned 15% and my mortgage interest rate is 2.75%. It makes more sense to invest than pay off my mortgage. If I had to I could use the returns to pay my mortgage back early. Today I chose to let it ride in my investment account.
My biggest hurdle was to stop spending those few dollars because “I deserve this and can afford it.” YNAB (You Need A Budget) helped me realize I would rather save those few dollars for something that is more important to me, like financial security. They added up faster than I though possible. I was amazed by how much I wasted on those seemingly inconsequential expenses.
Mattej says
” I never knew anything about money other than earning it, saving some and spending some. But to use it to make it grow, I was and still is totally ignorant. I do not know anything about stocks and bonds. ”
I was the same way – I was making great money from 23 for a good 25 years and I mean really good and lived frugal but really LIVED. All my $ in cash now and I am also single, no kids, a house inherited from parents but not working as ageism is slapping my face. Studying dividends and stocks 4-6 hours daily. No debt and no mortgage – I am well insured for health emergencies due to various citizenships and that is only $100/month to be covered worldwide. Now, being so liquid I too must figure out how to make money with my cash – 25% at least 500k to put in the markets WISELY – a lot of us were brought up to work work work and no one ever told me every about investing and with so much money coming in yearly NET, I didn’t worry but lived very minimal.
You are not alone and don’t go back – forward and learn and that is all we can do.
Suzie says
My best advice would be to read everything you possibly can on the internet or at your local library to get yourself up to speed on personal finance. Two years ago my hubby and I were in debt and not in the greatest shape financially. Things weren’t dire but still I was stressed and depressed. I kept at it though. Started by reading more about personal finance, frugal living, saving, investing, etc. As of now we have paid off all our credit card debt; we still use it and pay it off every month. Yesterday we closed on refinancing our mortgage; cut the rate and time left on it in half. We both drive cars that are over 10 years old and have well over 100K miles on them. I just became eligible for a 401K at work so I signed up that for that plus I have had an IRA and have put $5K in it this year. We still have a ways to go to be set to retire in 5-10 years but we are well on our way. It has been a complete 180 for me and I am grateful.
Alaska49 says
Here is a blog post that tells how a couple starting at 49 years old and little savings was able to retire 14 years latter.
http://www.theretirementmanifesto.com/its-never-too-late-to-start-saving-for-retirement/
It can be done.
Elizabeth says
I read your suggested blog post Alaska49 and it was a truly wonderful and motivational post. Thank you for sharing it.