More than one third of people aged 50 have less than $25,000 in savings and investments. What can they do at this point?
By Deborah Jeanne Sergeant
Ideally, people should save for retirement their entire working lives. But slightly more than one-third of working people aged 50 and older have less than $25,000 in savings and investment, according to the AARP’s analysis of the 2016 EBRI Retirement Confidence Survey.
While $25,000 isn’t a lot, people in their 50s can still build this nest egg using the strategies local experts recommend.
To have more money to invest and save, Diana Apostolova, financial consultant with AXA Advisors, LLC in Rochester, recommends that people in this situation continue working and, if offered, contributing to their 401k.
Apostolova also recommends cutting back on non-necessities and evaluating how much benefit each expenditure provides. Where’s the money going and why? What can be trimmed from the budget?
A few examples could include optional insurance riders, high-end cell phone plans, using a land line, eating out or buying coffee out too often, or unused subscriptions. Refinancing the home mortgage and consolidating and eliminating debt can also help keep more money in the budget.
“By simply doing such an exercise, many people are astonished how much money they find,” Apostolova said.
Someone who owns vacation property should consider either renting it out for continual income or selling.
In addition to saving aggressively, investing more aggressively can also help build the nest egg. This type of investment may garner high returns, but Apostolova doesn’t recommend it.
“It generally comes with a big uncertainty in actual returns and the chances are that they may get some decent returns however they may also run the misfortune of losing a big chunk, and possibly all,” she said.
A less risky strategy is investing for 10 years with a safer, more reliable type of investment that has principal protection, according to Apostolova.
“The investment allocation should be made in such a way to ensure that the account will grow but yet not be subject to market losses,” Apostolova said.
She said that the mix might include fixed annuities, CDs, structured notes, structured CDs, investment grade individual bonds maturing in 10 years — or longer if a bond ladder is used — and equity investments for a long term returns.
Ryan W. York, financial adviser and chief executive officer with Pinnacle Investments, LLC. in Rochester and other locations, thinks that a lot of people look at Social Security as their main source of retirement income — but they shouldn’t.
“It was started before baby boomers and didn’t take into consideration extended life spans and the cost of living being outpaced by healthcare costs,” York said.
York would advise a client in this scenario to continue working, at least part-time. If the client enjoys that type of work, then continuing to work shouldn’t be that difficult.
Retiring to a high-end location and traveling to exotic locales may not happen. Readjusting expectations can help make retiring sooner more realistic.
“Every situation is different, which is why creating a plan is helpful,” York said. “Some want to move away from central New York to where it’s warmer. Others choose to reduce their cost of living to live closer within their means and retire sooner.”
He added that people should plan to support themselves for 30 years after retirement.