50 years old with no savings

[ckelly78z]

Getting to the age of 50 with no savings sounds like a fundamental failure of proper thinking. He has been spending his money on something up to this point, and will have difficulties, not continuing that trend.

A multi faceted approach of spending cutbacks, sticking to a new budget that he creates, and automatic savings are his only hope achieving F.I. at around 70. It doesn't sound like he has the discipline to accomplish this, so results are questionable.

[rothlev]

The other thing that is scary about his situation is if he is a small businessperson, he may not be declaring all his income. This saves money today, but at retirement he may be in for a surprise at how low his social security benefit is if this is the case. Hopefully he has been paying into social security.

It happens a lot. I see lots of UBEER drivers for example, after they write off the mileage there is basically no taxable income left.

[mystang52]

We're all preaching to the choir here. Based on OP's clarification of his relationship with the 50 year old, I'll bet dollars to donuts that his original good advice fell on deaf ears. Best LIKELY case scenario is that the 50 year old actually heard OP's advice, doesn't change his ways now, but in a year or two...or 3 .. he'll recall the conversation and get cracking at that time.

[mrfeh]

Quote:

Originally Posted by UnrealizedPotential I ran across a man recently that like the title says is 50 years old. He has no savings of any kind. He is married. He has no clue how to get started or what to do. All he will have is Social Security. I feel bad for him, and his wife. So he asked me for advice. This man clearly needs help. So I gave him the best advice I knew how. I asked him if he is willing to work until 70. He told me he has already resigned himself to the fact that he has no choice . So I gave him the name of a broker he can use. I'm not promoting the broker so don't want to say. I told him to open up a Roth Ira. Put whatever money you can in the SP 500 index fund. I drove the point home that withdrawals are tax free. I told him try to hold off on SS until age 70. Then at the same time he can take withdrawals from his Roth Ira. I try not to give advice. But at 50 years old I felt this man didn't have time to get educated. I told him what to ask for help with and tried my best to steer him in the right direction. My thought was with the Roth Ira and SS he will struggle at age 70 financially , but at least he has some sort of a plan. I hope I did the right thing for him as it looked like he didn't know who to turn to , and really it was just blind luck I happened to see him . I do not know him very well. I had no idea this would happen. Any thoughts are appreciated.

I would've suggested a tax deferred account instead of a Roth.

I also wouldn't say it's too late to get educated. A couple hours spent on the bogleheads wiki is all that's needed.

[UnrealizedPotential]

Quote:

Originally Posted by mrfeh I would've suggested a tax deferred account instead of a Roth. I also wouldn't say it's too late to get educated. A couple hours spent on the bogleheads wiki is all that's needed.

You could be quite right about the tax deferred being better than a Roth for him. The question I would have for you is why? How would he benefit better from tax deferred than a Roth? I am just trying to learn your reasons so I can better understand.

[mrfeh]

Quote:

Originally Posted by UnrealizedPotential You could be quite right about the tax deferred being better than a Roth for him. The question I would have for you is why? How would he benefit better from tax deferred than a Roth? I am just trying to learn your reasons so I can better understand.

Given he has no savings, I am assuming his marginal tax bracket will be lower in retirement. In that case, the Roth is the inferior choice.

[JustCurious]

Quote:

Originally Posted by mrfeh I also wouldn't say it's too late to get educated. A couple hours spent on the bogleheads wiki is all that's needed.

You can lead a horse to water but you can't make it drink.

[Filetmerlot]

Is the small business worth anything? Would he be able to monetize the business when he wants to retire?

[UnrealizedPotential]

Quote:

Originally Posted by mrfeh Given he has no savings, I am assuming his marginal tax bracket will be lower in retirement. In that case, the Roth is the inferior choice.

But will he end up with more money in the end with a t-ira than a Roth? That's the part that I can't figure out. I don't know his income now, but I think it's a safe bet it will be lower income in retirement for him, if he is even able to retire.

[mrfeh]

Quote:

Originally Posted by JustCurious You can lead a horse to water but you can't make it drink.

Very true. But if one is willing to learn, it is never too late.

[mrfeh]

Quote:

Originally Posted by UnrealizedPotential But will he end up with more money in the end with a t-ira than a Roth? That's the part that I can't figure out. I don't know his income now, but I think it's a safe bet it will be lower income in retirement for him, if he is even able to retire.

Assuming all else is equal, the only thing that matters is the tax rate. If it will be lower in retirement, you want to defer taxes.

More info: https://www.bogleheads.org/wiki/Tax_basics

[UnrealizedPotential]

Quote:

Originally Posted by mrfeh Assuming all else is equal, the only thing that matters is the tax rate. If it will be lower in retirement, you want to defer taxes. More info: https://www.bogleheads.org/wiki/Tax_basics

I have to admit this part is a little beyond my understanding. But since I agree with you that his future income is likely to be lower in retirement and others are saying that a tax deferred is better for him, I will bow to your advice. I will call him , but I will recommend the T-ira instead of the Roth.

ETA- I called him. I recommended the traditional Ira instead of the Roth for him. I feel I did my best to help him. That's all I can do.

[rothlev]

Quote:

Originally Posted by UnrealizedPotential I have to admit this part is a little beyond my understanding. But since I agree with you that his future income is likely to be lower in retirement and others are saying that a tax deferred is better for him, I will bow to your advice. I will call him , but I will recommend the T-ira instead of the Roth. ETA- I called him. I recommended the traditional Ira instead of the Roth for him. I feel I did my best to help him. That's all I can do.

He will pay less in taxes now with the traditional, and he will pay 0 in taxes either way upon retirement. He is saving money by lowering his federal tax bill, by deferring. Upon retirement if social security is his main or only source of income he will not owe any taxes on it anyway, so there is no purpose for the ROTH. ( The purpose of a ROTH is to have tax free income at retirement ). ( his income is already tax free)

The growth of the money would be the same either way.

[rothlev]

He does need to know that any money he sets aside in a traditional IRA MUST be left alone. If he changes his mind and withdraws the money he will pay a 10% penalty and the tax. He cannot touch the money until retirement. If he thinks he may need the money earlier than 59 1/2 then the ROTH is a better option.

[ncbill]

No easy solution.

I'd say work until at least 70 if physically possible, take SS no earlier than 70 as well.

[pb4uski]

Quote:

Originally Posted by sheehs1 ....For me the lightbulb was 25 + years or so ago when I saw a spreadsheet that showed the affects of investment compounding + adding additional savings to it each year. Even when I had the years of college educations ahead of me. ....

If he saves $100/month from now until he is 70 in 20 years and it earns 6%/year then he'll have $46,205 at age 70.... at a 4% WR that would be $154/month.

$200/month saved would be $308/month at age 70.

Etc.

Steer him to my third tag line....Solw and steady wins the race.

[JustCurious]

Quote:

Originally Posted by Z3Dreamer I now realize that some are just not savers.

Exactly. Some people are savers and some people are not, and no amount of education or fancy charts will change that.

[UnrealizedPotential]

Quote:

Originally Posted by mrfeh Assuming all else is equal, the only thing that matters is the tax rate. If it will be lower in retirement, you want to defer taxes. More info: https://www.bogleheads.org/wiki/Tax_basics

So when income is higher during working years, he will benefit from getting a tax credit. But during retirement when we believe his income will be lower he will benefit because he pays lower or no taxes because of the lower income. Am I understanding the basic idea? Anyone can answer this. I am just trying to increase my knowledge.

[HI Bill]

Quote:

Originally Posted by UnrealizedPotential So when income is higher during working years, he will benefit from getting a tax credit. But during retirement when we believe his income will be lower he will benefit because he pays lower or no taxes because of the lower income. Am I understanding the basic idea? Anyone can answer this. I am just trying to increase my knowledge.

Yes, if the tax rate (tax bracket %) is anticipated to be higher prior to retirement, then saving tax-deferred is best, if when you take distributions (and SS), then your retirement tax bracket will be lower. The idea is to pay the lowest lifetime taxes and maximize your cash flow.

[UnrealizedPotential]

Quote:

Originally Posted by HNL Bill Yes, if the tax rate (tax bracket %) is anticipated to be higher prior to retirement, then saving tax-deferred is best, if when you take distributions (and SS), then your retirement tax bracket will be lower. The idea is to pay the lowest lifetime taxes.

I understand much better now. Thanks! That is why this forum is so great. There is so much to learn and members are willing to help you learn what you need a little help with.