Recently I heard about a neighbor in his 70’s who has to go back to work because of going through his 401K. In spite of having a pension and Social Security, he & his wife spent their 401K savings and now in their mid-70’s have to go back to work.
Two things I am aware of about them, they retired before they paid off their house and recently bought a brand-new pickup truck (during a time period when all car purchases are historically high due to supply chain shortages).
There are many questions I would have for them, but since I only heard about it and haven’t spoken with them, I can only speculate about their circumstances. Some of the question I have include: how did you spend to this point? Did you try to fix things before getting to this point? What are you spending on?
Lessons I’m taking from this revolve around having a plan, having and following a budget and paying attention to my balances on a regular basis.
Having a plan: here I am in my mid-40’s and I’ve been saving for retirement for 20+ years now. I know that I want to have plenty of money to enjoy life while also having enough to dig into if an emergency should arise. Even before retirement, I have an emergency fund. While I don’t necessarily have an exact dollar figure in mind for retirement, I DO know that I’d rather have more than I think I need.
Having a budget: This is the best way I have found to actually HAVE a plan! On a monthly basis, I have a plan for the income I’m bringing in. Here’s a quick story about when I started budgeting. Years ago, I was laid off from my job. When I was told, I smiled on my way out of the office. How was I smiling? I didn’t really enjoy my job so I wasn’t heartbroken to lose it, but more importantly, 2 months earlier I put together my first budget. I knew exactly how much income I needed in order to get by and was able to very quickly able to figure out that unemployment was going to cover all but $25 of the minimum I needed. I have had a budget ever since. Over the years, I was able to shift how I budget and got to the point that I’m a month ahead. My income in March covers April.
Knowing what I have coming in and where it’s going is fun for me. I’m a personal finance geek and love playing in my budget spreadsheet on an almost daily basis. But, it’s also a great way to know exactly what I have and where it’s going. In having a budget, I’m able to figure out how much to save, was able to pay off all debt over the years and adjust here and there to ensure I can cover what is important to me.
Lastly, from this particular couple’s situation, I learned that heading into retirement, having no debt is SO important. Having a house paid off (or a plan to pay it off as quickly into retirement as possible), having cars and credit cards paid off allow your retirement income cover the necessities.
As I head closer to retirement years, living within my means, finding little ways to snowflake income to build up savings will allow for a relaxing, fulfilling time of life without the worry of having to go back to work (which to me would feel like a backtrack).
*Obviously there are circumstances that can negatively affect how long savings will last, but barring those, being prepared and planning ahead will make a huge difference.
Moral of the story: Budget, live below your means and have a plan!