I have a friend – let’s call her Allison – who’s kind and generous. She provides financial and emotional support to less fortunate friends. She donates money to worthwhile causes. She’s a lawyer whose job it is to help poor people in Family Court. She’s fun, funny and nice to those around her. That’s the good news.
The bad news is that even though Allison is in her mid-fifties and makes over $100K per year, she burns through every penny she earns. Her job is tough and stressful so she uses spending therapy – clothes, jewelry, hair, mani-pedis – to compensate. She lives to take expensive and exotic international trips to temporarily escape her difficult life. She’s a classic Oblivious Wage Slave.
She also trapped under a mountain of financial stress. Every little financial hiccup is a crisis because – hey, where’s the money going to come from? She regularly gets financial life-support from her 81-year-old dad but he won’t be around forever to provide that support.
All this stress is taking a toll. So she chokes down a bucket full of meds to help manage it.
Worst of all, her stress will continue indefinitely because she has no retirement savings and no pension other than Social Security. And we all know it’s tough retiring on just Social Security. When her dad dies, he will leave her a small inheritance but nowhere near enough to fund her retirement.
The painful reality is that Allison has a genuine, dial 911, do-not-pass-go, Retirement Savings Emergency! And she’s definitely not alone. One of my favorite bloggers, Financial Samurai, recently wrote about this in Retirement Savings By Age Show Why Americans Are Screwed. There’re lots of people in their 40s, 50s, and even 60s who have little or no retirement savings.*
Mrs. FF and I find this ubiquitous lack of saving for retirement strange and mysterious behavior. How do these people sleep at night? I’d be a hot mess.
We started saving for retirement when we were 25 and got our first real jobs. The amounts were small in the beginning but I understood the power of compound interest. So we always maxed out our retirement contributions and tried to save even more in after-tax accounts. This continued right up until the day we FIREd.
Anyway, I can’t help everyone with a Retirement Savings Emergency, but I’d like to at least help Allison.
Allison obviously should save more for retirement. Heck, if she would save just $500 a month for 15 years with a 7% annual return, she’d have almost $160K at the end. That’s way better than the big goose egg. So why doesn’t she and others like her just do it?
The problem isn’t knowledge or access to personal finance information. Everyday we’re all peppered with articles on how to save more for retirement. You can cut-down on eating out, downsize, move closer to work, take cheaper vacations, and so on. This stuff is easy to find unless you’re living under a rock.
The problem is motivation. I’ve periodically had conversations with Allison about saving money for retirement. Allison usually replies with something like “I live like a peasant and only live for today.” Or “I’m going to work until I’m 70 and then live under a bridge.”
I’m not sure where to go with her replies because it’s clear she doesn’t want to talk any further about it. I feel like smacking her up the side of the head and yelling “WAKE UP!”. I’m as frustrated as a dog pawing for his just-out-of-reach bone.
I obviously can’t force her to talk about saving for retirement. And so I ask you – what would do to help Allison? Or is there really nothing I or anyone else can do?
If I could cajole her to talk more about retirement, I’d help her see that she’s in the midst of a Retirement Emergency and a very grim future unless she changes now. Here’s what I’d tell her to do step-by-step:
- Register at the Social Security website and find out how much you will actually get from Social Security when you stop working.
- Imagine your future self living just off Social Security. What can you no longer afford? How will you feel about no longer having or doing those things? In other words, try to feel some compassion for your future self! Go meet people who’ve been forced to retire but didn’t save enough. How are things going for them? Do they wish they had saved more? Do you want to live like they do?
- Come up with an ideal retirement date and lifestyle goals. And take the time to learn about the Rule of 25.
- Figure out how much you need to save to hit that date and lifestyle. There are lots of free retirement calculators to help do this. I like cFIREsim or FireCalc.
- Realize you have a full-blown Retirement Emergency and PANIC! Panic is good because now you’re motivated to do something!
- Calm down, roll up your sleeves, and figure out how to get Freaky Frugal. You can make a budget, cut monthly expenses, save more, and invest wisely. It’s never too late to get started! See how close you can get to your ideal goals and try to make a game of it. I’m here to help you.
Of course this is all hypothetical because I doubt I can ever convince Allison to do any of it!
Thanks for reading! Do you know anyone like Allison? Any suggestions on what to do?
* Allison is a perfect example of why the US either needs to beef up Social Security or create some sort of Basic Income. Some people are Freaky Frugal either by nature or nurture and many, many, others are not.