Question: My youngest starts college this fall, and I’ve just recently started working again. (My husband and I scrimped and saved so I could stay at home and raise two boys.)
You might think hubbie and I would be celebrating our new-found freedom, but instead, I’m worried about our retirement. While he has a decent 401(k), I was out of the workforce for two decades. Now that I’m working again, I’m trying to build up my own 401(k). But my balances are so small, I don’t know how I’m ever going to catch up.
Any advice, Howard?
— Cynthia in Oregon
Howard Dvorkin CPA answers…
I got your email only a few days before I read a sad report from the TransAmerica Center for Retirement Studies. You’ve probably never heard of the place, but they do amazing research.
What they found just this month…
- Only 12 percent of women are “very confident” they’ll “fully retire with a comfortable lifestyle.”
- A whopping 56 percent of women plan to retire after age 65 — or not at all.
- 81 percent of women are concerned that “Social Security won’t be there for them when they are ready to retire.”
The scariest numbers of them all: “Women estimate that they will need to have saved $1 million in order to feel financially secure in retirement.”
So now that I’ve terrified you, let’s talk about your more pleasant options. For starters, you and I spoke after I received your email, and there’s some good news: You have precious little credit card debt. You and your husband are carrying a balance of $1,700. So the first step is to pay that off.
How does that affect your retirement? Well, the interest on that $1,700 is going to a credit card company instead of you.
Second, both of your sons are in college but fortunately, you (and they) made the smart choice of attending a local community college for their first two years — something I suggested to another reader years ago.
Third, you had long ago purchased a 529 Plan for your sons’ education. So simply put, you don’t have to choose between your children’s education and your own retirement. I hope all the younger couples reading this take note.
What you need to do from now on
With these wise fiscal decisions behind you, let’s look ahead…
1. Consider downsizing. Once your youngest son is out of the house, can you move into a smaller house? The difference between selling a big house and moving into a small one can be directly invested for your retirement. Plus, you’ll save on everything from insurance to heating and cooling costs.
2. Go high tech. You sound like a responsible couple, but I’ve counseled older couples who still budget with paper and pen. Try a free online budgeting tool, which allows you to experiment with moving money around and seeing how the savings add up. My personal favorite is PowerWallet, which is why I partnered with them. But there are many others.
3. Join AARP. I have no connection to the organization, but I recommend it simply because it focuses on retirement issues I don’t have the space to explore here. Check out what’s available for free online, and consider joining if you think you’ll avail yourself of the AARP discount programs, which can total more than the annual membership fee.
Bottom line, Cynthia: Retirement is a scary financial situation for many Americans, but you’re positioned better than most. Keep doing what you’re doing.
Have a debt question?
Email your question to firstname.lastname@example.org and Howard Dvorkin will review it. Dvorkin is a CPA, chairman of Debt.com, and author of two personal finance books, Credit Hell: How to Dig Yourself Out of Debt and Power Up: Taking Charge of Your Financial Destiny.