Gen X is totally unprepared for retirement?
This topic was explored in an article on Yahoo Finance. Unfortunately, most of these articles do not have a lot of meat on the bone. I've been blogging about this for almost 20 years and hopefully have something more substantive to offer. Ultimately, something will have to give if you're not going to have enough money for the retirement you think you want.
1. Understand the 4% rule and how it works
4% is the standard for safe withdrawal rates in retirement. Only taking out 4%from your savings has never failed looking backwards and looking forward, based on Monte Carlo simulations it has something like a 93% success rate. If you have $800,000 saved at retirement, the 4% rule would have you take $32,000/yr to be safe.
Usually they say take 4% the first year and then adjust for inflation every year. That makes no sense to me. It is much simpler to look at your balance and take out 1% per calendar quarter. Normal stock market growth will take care of the inflation.
Once you fully understand the 4% rule, you can make an informed decision about taking more than 4%. Taking 5% instead of 4% isn't that much riskier. Not no risk, just not that much more risk.
2. Save more money
That might be easier said than done but reducing discretionary spending would allow for saving a little more.
3. Cut expenses now
As opposed to discretionary spending, I mean fixed expenses. Once your car is paid off, drive it for another 15 years.
Downsize your house? That might have made sense two years ago but interest rates now make that trade unlikely to be beneficial.
We recently turned off our landline. Have you done that yet? That saved us about $700/yr. We did it because believe it or not, the phone company stopped providing real service here. The phone lines go out when it rains, seriously, and getting them to fix it is impossible.
Cut the cord. You could probably cobble together 4 or 5 streaming services to get 3/4 of the programming for 1/3 the cost of Directv, not sure about cable.
Can you get away with crappy health insurance? We have crappy (cheap) health insurance. We save about $700/mo versus going full boat through the healthcare.gov website. Being able to do this is one of the endless benefits of eating right and exercising.
There'd be more here to consider.
4. Or cut them when you retire
This is a harsh one but can you sacrifice things you plan to do? A simple example would be with travel. Take fewer big trips when you retire or if need be take no big trips. Can you take smaller trips? We've taken a few really big trips over the years but we take a lot of small ones. For us, driving up to the Page, AZ/Kanab, UT area or over to Moab. UT is close by, there's endless things to do and we love both areas. Many of us got a taste of no big trips during the worst of the pandemic so it might not be totally unfamiliar even if disappointing.
5. Work longer
I had a conversation with someone about my age who said they would work a couple of more years if they had to. That is not an option for everyone for various reasons, all the tougher for people who dislike their job.
6. Post retirement career
Can you retire and then hire back in as a part timer (or just switch to part time)?
Do you have training in some other field, self taught or otherwise, that you could monetize?
Do you have a hobby you could monetize?
Are there opportunities for seasonal work, like working full time for two or three months out of the year?
7. Move to another country
The context here is usually to sell here and move after thorough research. I have a different take that relies somewhat on being relatively healthy. Plan to go for a few years, like maybe 5. Rent out your paid for house in the US and live off that rental income while allowing your savings to grow in the stock market and allowing your Social Security payout to get closer to the max that comes at age 70. Then come back.
Selling your house to do this runs a serious risk of getting priced out of where you want you live back in the states
8. Mortgage free
Do you still have a mortgage? How old will you be when it is paid off? Can you pay in more than the minimum to ensure it is paid off by the time you plan to retire? This is not easy, just as saving more money is not easy but where a mortgage is typically one of maybe our two largest expenses (the other being health insurance), having it paid off would be a huge help.
9. Take some sort of risk?
In 2017, we bought the cabin next to us for the purpose of renting it out on Airbnb. The cabin was cheap, the mortgage is low but we put made a large down payment. I was 51, it will be paid off when I am 66. We've had fantastic luck with it. The view sells it, we are booked all the time. Is this sort of thing possible for you?
10. Get entrepreneurial
If number 9 wouldn't work, what would?
11. Make the most of the time you have
If you're 55 and think you are very undersaved, then yeah, it might be difficult to catch up but you can make progress with your savings. Five, 10 or 15 years is enough time to build up a meaningful retirement account balance even if that balance isn't sufficient to cover everything, it could be one of several income streams.
At 55 you also have plenty of time to figure out a Plan B like getting training for a secondary career, figuring out how to monetize a hobby or finding anything else that could be cultivated into a meaningful income stream.
12. No one cares more about your retirement than you
That is a quote from Joe Moglia. It is up to us individually to figure this out for ourselves.
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