I’m 55. I want to Retire with no Savings

It is amazing to me that people would think this way, but not terribly shocking to others who are familiar with statistics. After some quick math this morning, I realized that making money alone was not going to be enough of a strategy for handling retirement for people in this situation.

In terms of conventional wisdom, most people talk about a 4% draw-down of personal assets on a yearly basis while in retirement. This makes sense because it is likely that on some years, there will be a less-than-optimal year of stock performance while there will be other years where the portfolio will have put in a stellar performance. 4% is the number many people stick as a good average to make sure that people don’t take out too much up front and then end up chasing butterflies and rainbows later on when trying to make it back in the economy because they’ve spent too much.

Reality Check:

For some people, its time to face facts. People that have waited until 10 or less years before they’ve retired to start significantly saving are most likely going to feel a pinch on retirement day.

Indeed, many retirees or near-retirees are simply embracing the idea that they will never stop working. Part of this, undoubtedly is due to the increase in expenses related to healthcare, but the fact is that most of this relates to the plain and simple truth that there just is not enough there in their personal retirement coiffers to sustain them at the lifestyle to which they were accustomed.

10% Might Not Be Enough:

Even for people who start relatively early, saving ten percent might not be enough. The group I am talking about here are those under 40, but older than 25. Let me explain why: Say you are 25, and you make a salary of 50,000 dollars. Even if you were agressive and were able to start saving 5 or 6 percent of gross, pre-tax income starting immediately, it is likely that you will have just about 100000 dollars in just contributions (not adjusted for inflation or raises) if you were to retire at 65. Compounding interest will help you out significantly, but the reality is that there just won’t be enough time for you to achieve what you really will likely need in retirement, something north of 500k. In today’s economy, raises are just barely keeping with inflation so that the two of them will likely cancel each other out and you shouldn’t be counting on a windfall somewhere either.

Expenses Count Too:

For someone at age 55, the best bet is to take a real hard look at the expense side of the equation as well. More detrimental in my opinion than the lack of funds in a retirement portfolio for someone starting so late is a big chunk of monthly expenses. A significant deal of the work will be to investigate and resolve any excessive expenses. After that, it is a matter of being frugal with the remaining sum and anticipating the inevitable.

My guess is that the real demise of Medicare and Social Security will be quiet and sneaky, not loud and obvious. Even powerful politicians eventually will cave to grade-school math. There just isnt enough money coming in to cover the existing payments, let alone the increased expenses once all of the boomers have retired. Taxes are already high and a tax-hike in the form of mandatory insurance, increased medicare percentage costs etc will eventually hurt businesses and hurt the economy. These items must be planned for and factored in, especially for someone starting late.

Look Before You Leap:

Just accounting for these items and being aware of them will give someone pause who is at age 55 or 60 and about to deal with retirement. For people in this situation I hope that this article has helped to give some options; sometimes by bringing these issues to the fore and dealing with them sooner, we actually do making things better for ourselves in the long run. Im an options-kind-of-person. Not stock options. At least not yet. Rather, I mean that when it comes to my money and my life in general, I like to put myself in a position to have as many choices as possible. Often, this means that I will forego items in the present in order to assure myself a more wide array of choices later. This is the crux of personal finance, really, and why starting soon could make a big difference.

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