In yesterday’s post, we highlighted the powerful advantages of time and compound interest in building wealth for retirement.
But what if you are already in your mid 50s, and have not saved very much towards retirement?
Many hard working people have used their best income generating years to provide for family needs (and wants), and now are very concerned about their lack of retirement assets.
Some will make the mistake of “rolling the dice” and taking on excessive levels of investment risk to fund the deficit. In addition to the risk of “too good to be true” investment scams, just bad market timing may result in quick and devastating losses that will be hard to recoup in a short time.
I recommend a conservative “old school” path, requiring significant lifestyle changes, and urgency.
Accept that you will likely have to work more years, and it probably pushes retirement into the 70s.
Dramatically downsize your expenses. Anything not required, cut it. You will have to adjust to a more frugal lifestyle to make it work in retirement, because clearly there is not the money available to quickly generate a large nest egg.
Don’t chase outsized investment returns. Very few investors can produce and sustain above average returns, so although you may succeed for a while with aggressive investing, eventually you will get burnt. It’s like being hot in a casino…the house always wins if you play long enough.
Focus on saving money, not making aggressive investments. Just sock away as much as you can, without taking losses.
Why? In this very low interest rate environment, there are few good investments for the 55-65 year old group. So just save money while gainfully employed. Hopefully by the time you retire, interest rates on low risk savings accounts or U.S. Treasury bonds will be back to 5%, and you will have a decent additional source of sustained income.
Develop an alternate source of income to generate savings. Maybe learn a trade or skill, that is not labor intensive or strenuous, that you will be able to do for the next twenty-five years outside of a company. Freelance writing, cyber security credentials, real estate license, etc.
Nurture family relationships, especially with your productive children! There is a stigma in our culture about aging parents receiving any form of “help” from grown “children”, but well-raised kids are usually eager to give back to loving parents.
Families should always bond together so that well intentioned members never fall through the cracks.