Making the Most of Your Working Years

MAKING THE MOST OF YOUR WORKING YEARS

If you are still working, you are in a great position to improve your retirement picture because you still have an income to put toward a variety of goals.

For many of you, saving more is a top priority, yet you are struggling to come up with the extra dollars you wish you could be saving.

The solution, my warrior friend, is quite easy. Stop spending so much. Don’t you “Oh, Suze” me. In this chapter I am going to expose all the ways you are spending more than you need to. I do it with love, and with the hope that you will be excited to consider how changing your spending can give you the money you need to polish up some of your retirement goals.

While you may be focused on the need to save more for retirement, I am most concerned that you pay off all your debts before you retire. In Chapter 4 I have a detailed explanation of why I want you to pay off your mortgage before you retire if you intend to stay in your home. But I know for many of you there is also credit card debt lurking, and car payments. That has got to go. Carrying debt into retirement will make it impossible to live the ultimate retirement. How can you relax and enjoy yourself if you must spend a chunk of your retirement income each month to make expensive debt payments? In this chapter we are going to explore how to live below your means but within your needs. Does that sound like punishment? You couldn’t be more wrong.

Not only will living within your means leave you with more money to put toward your financial goals, but it will also make your life easier in retirement. If you reduce your monthly spending by $500 or $1,000 a month today, that’s $500 or $1,000 a month you won’t need to generate in retirement. Spending less today reduces your retirement overhead. Not exactly punishment, when you think about the long-term payoff, right?
 
Your remaining working years are also a time when you can explore some smart retirement options. I know many of you have no plans to stop working. I think that’s a great strategy; I am all for working until at least 70. But it also comes with risks that you need to plan for today. Starting with the fact that management may not share your enthusiasm for your continuing to work at your current job. And for those of you in your 50s (and 60s) and in good health, I want you to give serious consideration to whether a long-term care insurance policy makes sense for you. Even with rising premiums, once you do the math, they can still be a cost-effective way to protect yourself and your loved ones from the possibility of needing to spend large sums of money on your later-life care.

THE MOVES TO MAKE DURING YOUR WORKING YEARS

• Prioritize paying off all debt before you retire.
• Save more for retirement … in the right accounts.
• Have a plan to work longer.
• Consider long-term care insurance.

Prioritize paying off all debt before you retire.

When I ask people what would make them feel financially secure, 9 times out of 10 the answer is being debt free. I couldn’t agree more. Especially in retirement. If you still have a mortgage and are carrying high-rate credit card debt and maybe a car loan (or two), you are putting a lot of pressure on your finances to be able to pay all those bills and still have plenty to cover your other needs — and let’s hope plenty of wants too!

I bet you’re a bit skeptical that you can pull this off. It’s not as if you haven’t wanted to tackle your debts for a long time. But you just cannot seem to find a way to make it happen.

Remember what I said earlier about your mind-set: Everything is possible if you believe in yourself. Before you start down the road of negative thoughts, slam on the brakes. You most definitely can tackle your debt if you are ready to summon your inner warrior and take a fresh look at your spending habits.

Embrace living below your means.

So how are you going to become debt free?

By adopting a mind-set where your goal is to live below your means but within your needs. If you are ready to be honest, you know that your spending sometimes veers off to fulfilling wants more than needs. For example, you need a car. But let me ask you a question:

Did you need to spend what you did on that car? Or did you just give yourself per-mission to spend more for something you wanted instead of buying a less expensive option?

Are you receiving this as if I’m asking you to eat your least favorite vegetable? Well, I am going to ask you to change that mind-set. This approach is not something that should depress you or feel like a burden. When you can get to the point where you live below your means, you are giving yourself a shot at financial freedom. You know what should excite you? The ability in retirement to have the money you need to live the life you want, rather than be weighed down by big, expensive debt payments. Are you with me?

Suze’s Story

My wife, KT, and I are blessed to have more money than we need. Do we spend money? You bet. But I must tell you, one of the things that has been a special bond between us is that we both get more pleasure out of the money we save than the money we spend. We truly enjoy living below our means.

Some examples of how we manage to save money:

We had multiple landlines in our Florida home for business calls, faxing, and personal use. We ditched those lines and are doing just fine with our cell phones. Now we e-mail the business correspondence we used to fax. Annual savings: nearly $1,000.

We have one car. One. And we have had it for 10 years.

Our home and auto insurance are with the same insurance company. That saves us hundreds of dollars a year. Keeping our FICO scores very high also helps keep our auto premium lower.

We only shop online if they have free returns. That way if we need to return something, it doesn’t cost us anything.

We use credit cards that give us cash back, and we keep track of when they have special offers. Then we use the card that pays us the most. We get back a lot of money in a year.

We never go into a grocery store without a shopping list of everything we need, and we stick to that list. It’s just that simple. That way we never spend more money than we planned on spending. And KT always checks for coupons when we go into a store to see if anything on our list is on sale.

We don’t spend money on buying gifts. We only give and receive handmade gifts with our family.

I share those money-saving moves from the Orman-Travis household as proof that this need not be painful or difficult. All those decisions were easy to make, and each one brought us pleasure. I bet you can do the same, and likely find even more ways to trim your household spending.

Not all spending cuts will be as easy as cutting the landline. But again, this is a challenge with a valuable payoff: retirement security. With that as your motivation, I ask you to take a fresh-eyed look at some of your major spending choices:

The Kids

For those of you who still have high schoolers at home, you should know that your child’s college choice can make or break your retirement. If you are behind on retirement savings, the biggest favor you can do for your kid is not pay for college.

Yes, you read that correctly. You need to funnel every penny into retirement savings. You’re going to have to believe me — your kids are going to be so grateful that you chose to focus on retirement. Okay, maybe they won’t be so grateful at age 18. But 10, 15, 20 years down the road, when they are raising their own families, they are going to be so relieved if you don’t need to rely on them for support in your retirement.

Please give this serious consideration. Retirement saving must take precedence over paying for college. That means no borrowing on your part, and only make contributions to a 529 College Savings Plan if it does not in any way limit your retirement savings.

You can work with your kids to focus on colleges that will be so eager to have them attend that the net price — after financial aid — will be low enough that your child can cover any shortfall with federal student loans. Federal student loans are affordable and safe.

And as we covered in the previous chapter, if you have adult kids, I want you to give some serious thought to whether your financial support is truly necessary, and what scaling it back could do for your retirement security.

The Car(s)

What’s sitting in your driveway or garage could explain a lot of your retirement stress. The average monthly payment for a new car loan in late 2019 was more than $500, and the typical loan runs for nearly six years. Both are financially indefensible in my openion if you are struggling to save for retirement.

If you need a car, your goal should be to spend the least amount you can for a reliable car. That means used, not new. Don’t you dare start in about reliability. Cars today are built to last.

If you need to take out a loan, I want you to commit to a term that is no longer than 36 months. If you take out a loan that you need more than three years to repay, then you are buying a car you cannot afford. You may say, “But, Suze, the monthly cost is higher on a shorter loan, so I’m spending more each month!” The truth is that with a shorter loan, you are spending less in the long run. The faster you pay off this depreciating asset, the less you will pay in overall interest and the faster you will have more monthly cash flow to put toward other financial goals, starting with retirement savings.

A smart move is to purchase a car that is just a few years old; look for certified pre-owned deals (CPOs) at dealerships. The cost of a used car that is a few years old — and still in good shape, of course — can be 40% less than the same model brand spanking new. Then aim to drive that car for at least 10 more years. You are not to trade in your car every three or four years. Do you hear me? Your goal is to get your loan paid off ASAP and then have many years when you won’t be making a car loan payment. Instead, you can take that money and use it to pay down any other debts or save more for retirement.

For instance, let’s say you had a loan that cost you $525 a month. After you pay off the loan, you keep driving that car loan-free and invest the $525 a month in a retirement account. In six years you would have saved $44,000, assuming a 5% annualized return. Let that $44,000 keep growing for another 10 years, and you will have more than $70,000. That’s your choice: an expensive car loan or building retirement savings.

And if you are tempted to lease, please listen to me: Do. Not. Lease. Many of you lease a car because the monthly costs are typically lower than the payments on a loan. It’s a bit of auto-lender sleight of hand that can be tempting — and very costly in the long run. Leasing is a financial trap. The typical lease is for three years, and then when the lease is over, the car is handed back, and another car is leased. That means you are never not making monthly car payments. When you have other financial goals — saving more for retirement, paying off your mortgage, reducing your credit card bills — there is no way you can financially justify leasing a car.

The Home

I don’t have to tell you that your housing costs eat up a big chunk of your monthly cash flow. In Chapter 4 we will consider a variety of housing moves that can solidify your retirement plan. Right now, my goal is to plant a seed: Could making a housing move transform your retirement outlook?

I know many of you want to stay in your home. It can be wrenching to consider a move if you have had roots in the same house for years, with all the memories that are tied to it. But I ask you to at least open your mind to contemplate a few realities.

Those memories are about the people you welcomed into your home and the experiences that took place within it. You can move and still have those memories to share with your loved ones.

Please know that I am not asking you to do something that I myself have not done. As we grew older, KT and I realized that it was time for us to downsize as well. I thought that once we sold our San Francisco home, we would miss it terribly, but I knew it was the best financial move to make, so we sold. To my surprise, we don’t miss it at all. We don’t miss the extra bills and the long-distance property management. We are loving our life on the East Coast.

If you are willing to entertain a downsize, I would then ask you to also consider making a move sooner rather than later, if that is practical. Moving to a less expensive home could set off a wonderful cascade of retirement savings: You may have gains from the sale that you can add to your savings. You will also likely reduce your monthly housing costs — the rent/mortgage, property tax, insurance, maintenance, etc. — and that can enable you to add more to your retirement accounts.

Lowering your housing costs might also make it easier to downshift to different work later that pays less but that you enjoy more. As I explain later, I think this may be an important ingredient to being able to work until you are 70.

Emotionally — and physically — a move when you are younger is going to be a lot less stressful than a move in your 70s or later.
I know this is a very big decision. All I ask is that you not dismiss it as an option. If you have an open mind and run the numbers, I think you may be pleasantly surprised at how a move can help you close any retirement gap.

Taking all this to heart can turn your future into one that you will love living.