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Double Your Savings

It’s never too late to grow your nest egg. Read what these proud savers did, and get started now!

Around the time most people turn 50, the light goes on. Retirement isn’t so far off. That once distant notion looms larger every year. Will you have enough money to make ends meet? To be comfortable? If the answer is no—and take heart, for most people it is—you know what you have to do: boost your savings.

As you’ll see from the examples of the folks who shared their struggles here, not only do you still have time to save but you may be able to double or triple your savings. The important thing is to get started, because once you do, savings have a habit of doing something wonderful: they grow.


Margaret and Joe Woods
Agawam, Massachusetts
Then: $38,000 saved (on a budget)
Now: $157,000 (on a budget they obey)

Four years ago, when the light went on for Margaret and Joe Woods about planning for the future, all they had in private retirement accounts was dribs and drabs. Today Margaret, 54, a kindergarten teacher, and Joe, 55, a transportation manager for the U.S. Postal Service, are serious budgeters making amazing strides in their savings. Her 403(b) account—the public-sector version of a 401(k)—has gone from zilch to $30,000, and his Thrift Savings Plan—a 401(k) for federal workers—has swelled from $38,000 to $127,000. How on earth did they do it?

“We had a budget before, but we never followed it,” says Margaret. That changed after they talked to a certified financial planner, Jim Smith, who impressed upon them that they were spending more than they should be. They needed to learn to live on less.

The first rule of budgeting was to cut impulse spending. This was hard. Shopping was their entertainment. “We don’t go to the mall anymore,” says Margaret, who opts for more evening walks, reading, and cross-stitching. Things they used to buy—clothing for their grown son, books for her class— “I don’t buy, or I discuss it with Joe.”

Joe is still driving the Chevy truck he planned on trading in two years ago. Margaret is thinking for the first time about buying a used car instead of a new one. In an effort to be debt-free by the time Joe retires in four years, they also are making accelerated payments on loans for their son’s college costs.

The Woods have discovered that saving is motivating and that they get a lot of pleasure when their statements arrive. Says Margaret: “Last year when we sat down with Jim, I realized we weren’t so deprived. I realized we’d have money for retirement, and I felt secure for the first time.”


Sue Sharp
Hampton, New Hampshire
Then: $123,000 in battered tech stocks
Now: A well-diversified $250,000

When Sue Sharp took early retirement from a big communications company ten years ago, she had a pension, medical benefits, and a 401(k). The 401(k) was worth $250,000, which she rolled over and entrusted to a broker at “a well-respected firm,” she says. This was in the late 1990s, and predictably enough the broker put her money in a number of growth-oriented mutual funds. Growth funds in those days invested heavily in stocks of technology and Internet companies, but what did Sue know? “The conversations I had with this broker were about whether to invest in funds versus stocks, and I chose funds because I’d be more diversified,” she recalls. By 2000 her portfolio was worth $400,000 and she was well pleased. Then the bubble burst. A year later her savings had shriveled to $123,000.

That sickening drop prompted Sue, now 57 and a real-estate agent, and her husband, Dick, 58, a pharmacy manager with CVS, to turn their assets over to financial adviser Holly Hunter, whom Sue had met in an investment club.

Sue may have thought she was diversified, but “she didn’t have enough bonds and other asset classes to offset the decline,” says Hunter. In fact, Sue’s portfolio had no fixed-income investments. “If someone had taken the time to explain what a truly diversified portfolio was and the importance of having one,” Sue says, “I would have been okay with having some bonds.” Instead, she suffered big losses.

Hunter did diversify the portfolio, which is now 27 percent in fixed-income securities, including high-grade and high-yield bonds and foreign bonds; 45 percent in a spectrum of U.S. stock funds; 18 percent in overseas equities; and a smattering in real-estate funds and commodities.

“Now, I’m a little over $250,000 in that account,” Sue says proudly. In other words, up 100 percent just to get back where she started. Moreover, she learned the hard way that she was going to have to take more responsibility for her investments. Today she peppers Hunter with questions about her account. “I feel comfortable with where I am financially, I do,” she says, “but you don’t know—curve balls get thrown your way. So I can’t rest. I have to be careful. And I enjoy myself as much as I can.”


James Barajas
Hacienda Heights, California
Then: A fixed income that fell short
Now: A growing portfolio plus wages

James Barajas says the smartest thing he did when his career abruptly ended after 32 years was to go see his cousin Louis, a certified financial planner, and his associate, Gilbert Cerda. “He figured the way I was living, I’d be out of money in ten years,” he recalls.

James, 57, had been a printer in Verizon’s directory division, earning more than $50,000 a year with overtime. Then in 2006 his entire department was let go. James needed a plan.

At Cerda’s suggestion, James took his pension in a lump sum and rolled it and a 401(k) into a $325,000 IRA, where the money could grow tax deferred. Grow it did. The portfolio—a mix of bonds and stocks, foreign and domestic—hit $383,000 in a year. Cerda figures 8 percent annual growth would mean James could take out $2,066 a month, or 5 percent of assets, and not run out of money for 30 years. (The IRS permits these early withdrawals as long as James takes them in equal and periodic distributions for a minimum of five years.)

Rolling your pension into your own IRA is not something a risk-averse person should do. AARP often counsels against this. Most pensions are guaranteed for life; if you make the wrong investments with your rollover, a bad turn in the market could sink you. But James figured that at his age, and with a sensible mix of investments, that kind of risk was worth it.

Still, $2,066 a month was not going to allow James, a bachelor who lives with his brother, to pay his $1,200-a-month share of the mortgage and buy health insurance. Unless he could find work, he’d have to spend down his savings. So James applied for a custodian’s job in a local school district and was hired last November. His $27,000 salary plus the IRA withdrawals just about replace his previous base pay. What’s more, he is doggedly sticking to the budget that Cerda put him on to make ends meet. “Now I bring my lunch to work,” he says, but he’s happy with his life. “I like cleaning. And they like me working at the school because I’m dependable.”


Linda and Arky Muscato
Peoria, Arizona
Then: $20,000 saved as of 2005
Now: $50,000

Before Arky, now 53, retired last year after 27 years teaching physical education in the Arizona public schools, he made a bold move to get on track to a secure retirement. Three years shy of qualifying for free medical benefits, Arky paid a fee to be credited for three years he had put in teaching elsewhere. The price was hefty— $45,000—but he was able to pay it by rolling the money in his 403(b) plan into the state retirement system and adding $12,000 he and Linda, 52, and also a teacher, had saved. “If I hadn’t done that,” he says, “I’d be spending $1,200 a month on insurance until I was old enough to qualify for Medicare. I could never have afforded to retire.”

Arky is also adding to his IRA because he is working in retirement. His business—T-shirts for schools, camps, and sports tournaments—used to net him $1,000 a month. Now that he’s devoting 15 hours a week to the job, his income is $2,500 a month. For the past year he’s been salting away the profits in an IRA and stocks. The $20,000 he and Linda had saved before his retirement has grown to $50,000.

Arky has also figured out how to make credit cards work for him instead of against him—he uses no-fee cards that rebate 2 to 5 percent for every purchase possible, including business supplies. He emphasizes, however, that he is scrupulous about paying off balances every month, because finance charges would wipe out the rebates, which add up to more than $2,000 a year “on money I’d be spending anyway,” he says. “I’d put my mortgage payments on credit if I could.”


Shirley Lawson
Brooklyn, New York
Then: $75,000 saved as of 1992
Now: More than $200,000

When she started her first job nearly 40 years ago, Shirley Lawson, 60, opened a savings account. And she has been socking away money ever since. “I think that was the smartest thing I did—getting started early,” she says. She’s diverting close to $3,600 a year lately, or about 15 percent of her income, to retirement accounts. As a result, Shirley estimates that the $75,000 she had 15 years ago has swelled to more than $200,000.

Two events helped get her motivated. Her kids grew up and moved out, and financial adviser Alfred Osbourne came to the church where she is the chief financial officer. Osbourne, who set up a 403(b) plan for the church’s employees, talked to her about her goals and what she would need to save to achieve them. “I live modestly, but I’m used to the lifestyle I have,” she told him, “and I don’t want to be pinched.”

Shirley has quite a bouquet of tax-advantaged savings plans: the 403(b) at work, a traditional IRA rolled over from a past employer, and a Roth IRA. “I also do the books for a funeral home, and they have a 401(k), so I put money in that, too,” she adds.

Her two daughters used to tease her about how dedicated she was to saving for any significant purchase. They don’t tease her anymore. That scrimping enabled Shirley, a single mother who finally earned her bachelor’s degree in accounting in her 50s, to buy a home.

“My girls never lacked for anything when they were growing up, but they didn’t always get as much as they wanted,” Shirley says. She still puts $40 of every paycheck in a Christmas Club at Emigrant Savings Bank, and she donated her car to charity a few years ago because the repairs were costing her more than the car was worth and public transit in Brooklyn is good. She has canceled all but two of her credit cards.

Shirley figures in retirement, in six to eight years, she’ll have income from her investments about equal to what she’s earning now—and perhaps will work a day or two a week. She feels confident that she’ll have all the money she needs, “and for that I’m very grateful to God,” she says. But even so, she plans to keep on saving: “I want to leave an estate for my daughters and my grandchildren.”n

Julie Connelly writes about business and finance from New York City. Her article on late bloomers, “Hitting It Big,” appeared in November & December 2005.

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