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Helpful Advice needed for a late saver
Old 11-15-2022, 08:07 AM  
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Helpful Advice needed for a late saver

Sorry the title is not more informative folks. I have a good friend who is 55 and for a variety of reasons does not have a lot of money saved.

The usual life stuff including an hereditary illness that cost a crapload of medical bills and trying her own business that didn't pan out including a MLM. Anyhoo she declared bankruptcy but wants to retire in 7 years.

She just started a new job and simply asked me "how can I make my money grow". Here's my dilemma

1) all I could come up with was "keep working as long as humanly possible "
2) I was more of the "slow and steady" wins the race type of investor. I do have a pension but I was participating in my retirement savings since I was 30.
3) I'd probably be hyperventilating if I was 55 with 10k saved so I don't think I know how to be helpful

Any suggestions??
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Old 11-15-2022, 08:21 AM  
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You are probably better off avoiding this topic with your friend. They show you a lifetime of financial issues - those won't change because they now "want" to do better. They haven't till now (bad luck and medical stuff aside) so likely any effort you spend on this topic won't result in any meaningful change.

But if I'm wrong!

- have them look at all their actual expenses - bills and all, to find stuff that can easily go
- have them focus on the next 6 months only, securing 6+ months of expenses, opening a new 401k, signing up for their employer match if there is one
- show them how to calculate the SS they'll currently receive
- then tell them, let you know after they have those nuts cracked, and come back for lesson 2 next year.
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Old 11-15-2022, 08:38 AM  
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Tell them they should expect to work part time in retirement and be prepared to do so.
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Old 11-15-2022, 08:56 AM  
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Quote:
Originally Posted by Aerides View Post

- have them look at all their actual expenses - bills and all, to find stuff that can easily go
- have them focus on the next 6 months only, securing 6+ months of expenses, opening a new 401k, signing up for their employer match if there is one
- show them how to calculate the SS they'll currently receive
- then tell them, let you know after they have those nuts cracked, and come back for lesson 2 next year.

I absolutely agree with the above.



She needs a budget that she sticks to like her life depended on it.


She needs to prioritize saving for retirement. Pick some good funds with a long track record and just stay with it. There is no magic stock that she is going to overnight get rich on. She should not get deluded into thinking there is some risky stock that is going to make up that gap. It will only make things worse.



Much as I like the idea of someone retiring as soon as possible, the situation tells me 7 years is probably not enough and if she is healthy enough, she will need to consider working until 65 or maybe 70 and NOT taking SS until then. You might not open with that information... if you can lead her to see it for herself that will be helpful.
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Old 11-15-2022, 09:30 AM  
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I absolutely agree with the above.



She needs a budget that she sticks to like her life depended on it.


She needs to prioritize saving for retirement. Pick some good funds with a long track record and just stay with it. There is no magic stock that she is going to overnight get rich on. She should not get deluded into thinking there is some risky stock that is going to make up that gap. It will only make things worse.



Much as I like the idea of someone retiring as soon as possible, the situation tells me 7 years is probably not enough and if she is healthy enough, she will need to consider working until 65 or maybe 70 and NOT taking SS until then. You might not open with that information... if you can lead her to see it for herself that will be helpful.
Agreed. And also set up some kind of realistic budget for the retirement phase (may be different than her pre-retirement budget).

Careful not to be too negative, too fast, but the reality needs to seep in at some point that retiring at 62 just doesn't seem reasonable (based on what we know).

Check that SS - make sure she has a the 40 quarters in, and that everything has been credited.

-ERD50
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Old 11-15-2022, 09:32 AM  
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Much as I like the idea of someone retiring as soon as possible, the situation tells me 7 years is probably not enough and if she is healthy enough, she will need to consider working until 65 or maybe 70 and NOT taking SS until then. You might not open with that information... if you can lead her to see it for herself that will be helpful.
You could help her to look up what SS she might be able to collect at various filing ages and show her what Medicare B/D premiums might be deducted from that. If she's planning on filing at 62 or on having Medicare meet most of her retirement expenses that could be a healthy dose of reality.
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Old 11-15-2022, 09:50 AM  
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At 55 it's probably too late to save any substantial amount for retirement if they expect to retire any time soon. Your friend should accept the reality of the situation, find out what SS will pay, and then reduce all of her expenses so that she can live on that.
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Old 11-15-2022, 10:06 AM  
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All of the advice given so far is excellent.

It sounds like she plans to maybe start SS at 62, it that is when she is planning to retire. So a definite look at what that income will be is warranted. Plus paying for medical insurance until 65.

Maybe hand her the questions in the Early Retirement forum FAQs?
Refer her to a good one time fee only financial planner for a possible eye opener, let them be the one who says "keep working".

However, not knowing her budget or spending, she may be able to do it. Many folks live on a slim, frugal retirement. Some do well, some do not.

Best wishes to your friend and praying she remains healthy
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Old 11-15-2022, 10:27 AM  
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I would suggest also impressing on her that there is no magic, no quick fix investments, and to believe no one who promises them. Biting on a fairy tale is the surest way to cause a small savings to become smaller.

Also this: Never buy an investment product that she doesn't understand. The more complex the product the more likely it is that it was designed to make money for the seller, not the buyer.

If she'll read, point her to "The Coffeehouse Investor" by Bill Schultheis. Then if she likes that one, she should also read his second book which contains a lot of investor anecdotes including late-in-life investors.
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Old 11-15-2022, 11:25 AM  
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All of the above is spot on.
1) Her attitude & motivation to change are critical.
2) She needs a budget ("spending plan" may be less intimidating). That budget must be followed, and must strongly emphasize savings (likely at least 30% of gross).
3) Retirement at age 62 is likely not in the cards. She should plan to continue working full time until at least 65, probably closer to 67-70.
4) She will likely be heavily reliant upon SS when she does retire, so she needs to delay taking SS for as long as possible -- 70 is the goal. That will give her the highest possible SS payment into the future.
5) Be as encouraging as possible -- there is hope! Remember that she only needs to replace the income that SS won't cover -- know what that estimate is. The lower her expenses, the easier that becomes -- do crank down that budget. Likewise, the higher her current income, the easier -- so an extra part-time job of some sort can be hugely impactful.

There's alot more that can be said, but especially with someone who doesn't know much, best not to overwhelm. Help her to understand & buy into the big picture, and leave it there. More details can come in time.
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Old 11-15-2022, 12:27 PM  
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Originally Posted by Music Lover View Post
At 55 it's probably too late to save any substantial amount for retirement if they expect to retire any time soon. Your friend should accept the reality of the situation, find out what SS will pay, and then reduce all of her expenses so that she can live on that.
She can research the government subsidies that she may be entitled to, section 8 housing, food stamps, special help from medicare/medicaid. She may wind up living on social security alone and it may be worth researching asset limitations etc... ( as her quality of life may not be better with a small savings than with almost 0 savings ). ( ie let the kids hold some money for her so she qualifies for help)
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Old 11-15-2022, 12:32 PM  
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She can research the government subsidies that she may be entitled to, section 8 housing, food stamps, special help from medicare/medicaid. She may wind up living on social security alone and it may be worth researching asset limitations etc... ( as her quality of life may not be better with a small savings than with almost 0 savings ). ( ie let the kids hold some money for her so she qualifies for help)
Yes, she shouldn't overlook any subsidies that she's entitled to. Also, consider moving to a LCOL area if her current location is too expensive.
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Old 11-15-2022, 12:39 PM  
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She can research the government subsidies that she may be entitled to, section 8 housing, food stamps, special help from medicare/medicaid. She may wind up living on social security alone and it may be worth researching asset limitations etc... ( as her quality of life may not be better with a small savings than with almost 0 savings ). ( ie let the kids hold some money for her so she qualifies for help)
Excellent suggestion. If she is in Pennsylvania, start here: https://www.aging.pa.gov/local-resou...s/default.aspx

Other states have similar resources.
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Old 11-15-2022, 12:48 PM  
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In my opinion the best thing a late to the game saver can do is to learn to practice frugal living. Very googleable info on it and supportive communities abound. That is, if your friend is not already doing that. I think if someone hasn't been living frugally, it is actually pretty easy to change habits/expectations and cut living expenses by 20% or more.
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Old 11-15-2022, 12:52 PM  
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She should focus on reducing her expenses so she has more to save and invest - roommates, public transportation, Reddit's eat cheap and healthy subreddit, capsule wardrobe, cheap cell phone plan, etc. Basically live like a college kid.

Since she has such low savings now, she could talk to a counselor from her local department on aging and see what senior or low income programs she might qualify for. Senior housing often has long waiting lists so if she qualifies it would be good so sign up now. Our local senior clubs are open to anyone 55 or over and have budgeting help and assistance program counseling.
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Old 11-15-2022, 01:49 PM  
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Another thing to tell her- if her current job pays better than previous jobs (when all are indexed to current level using the SS formula), every year she works in the current job adds a higher-earning year into the 30-year average and drops off the lowest-earning year, increasing her benefit. A friend who's 71 and still working FT and collecting SS has happily watched that happen with his benefit.
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Old 11-15-2022, 02:00 PM  
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You could help her to look up what SS she might be able to collect at various filing ages and show her what Medicare B/D premiums might be deducted from that. If she's planning on filing at 62 or on having Medicare meet most of her retirement expenses that could be a healthy dose of reality.
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At 55 it's probably too late to save any substantial amount for retirement if they expect to retire any time soon. Your friend should accept the reality of the situation, find out what SS will pay, and then reduce all of her expenses so that she can live on that.
What they said. The reality is that it's too late for her to accumulate much. That ship sailed 20+ years ago. She's going to have to realize that "this is where I am, what can I do to deal with it" and plan from there. The best thing she can to is plan on working full time until she's 70 and put off taking SS until then. If she does retire in seven years her retirement will be very frugal indeed. She needs to understand that.
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Old 11-15-2022, 02:20 PM  
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Look up motivational interviewing and use some of the methods in your conversations. For someone to change their habits they need to find their "why" and a "how" that will work for them. If they won't engage and just want you to tell them what to do you probably cannot help them.
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Old 11-15-2022, 02:23 PM  
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As has been said, work as long as she can. Try to hold off on SS until 70. Cut expenses to the bone. Unless I’m misunderstanding something, there’s no way I’d recommend retiring at lest until she’s Medicare eligible. The cost of health insurance or going with out it is just too great. FRA and on Medicare are the earliest I would go if I had no savings.
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Old 11-15-2022, 03:35 PM  
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I agree about looking at social service programs in her area.
What kind of housing does she have and what will she be able to afford? Will she be eligible for senior housing/ subsidized housing. These usually have long waiting lists.
Other programs such as Medicaid and food stamps are means tested. She should find out what the qualifications are and compare that to her expected income. Obviously the numbers will change in 7 years but likely not too drastically.
Many people are shocked at how poor you have to be to qualify for Medicaid and food stamps. Medicaid qualifications are very dependent on the state she lives in or intends to live in.

I would also suggest some type of budgeting program. I like YNAB- although the rates have gone up, some people like Mint. There are a lot out there. Developing her own may be too overwhelming. YNAB really helped me budget back in the day and took away the stress of budgeting for me.

Having a job with a pension would be optimal. If she could get vested then it could be a nice little supplement to SS.
She needs to look at how much health insurance will cost her and how much SS she is estimated to receive.

I personally would start with housing costs/options. I would want something that I could afford on my income alone. The number 1 reason seniors become homeless is that they lose the additional income- either from a spouse or roommate- and canít afford the housing costs.
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