Your Money ;
; Planning for retirement is essential.
; Work, save more, invest well, pay down debt.
; Then, there’s always option number 12.
By Jane Bryant Quinn
Safety nets fray when times get hard. Retirements that once looked secure are hanging by a thread. The message for those in their 50s is clear: Mend
the nets while there’s still time. Those in their 60s and 70s
have fewer options. Still, there are ways of making sure your
money lasts for life. Here’s how to do it in 12 easy steps:
1Get rid of debt. Nothing is more destructive of retirement than carrying debt when your paycheck stops. If you’re in your early 50s,
start debt reduction now. Try to prepay your mortgage, too, so you’ll own
your home free and clear. If you’re retiring now and prepaying would use
up too much cash, consider the other extreme: Reduce your payments
by taking a new, 30-year mortgage. It’s counterintuitive, but it works. Or
use your equity to buy a smaller place that will leave you with no house
payment or a much smaller one.
Don’t fall prey to the slimy promises of commercial debt consolidators.
Here are two legitimate and low-cost places to go for help with debt re-
duction: The National Foundation for Credit Counseling ( www.nfcc.org,
1-800-388-2227) and the Association of Independent Consumer Credit
Counseling Agencies ( www.aiccca.org, 1-800-703-8787).
In the worst case, consider bankruptcy. Never tap retirement accounts
to cover unpayable debts. IRAs and 401(k)s are protected in bankruptcy.
You’ll need those funds for a fresh start.
2Build a better budget. When you’re thinking about retirement, nothing is more important than knowing how far your income will
stretch. What will your expenses be? How much income will you have,
including prudent withdrawals from your savings? Get your spending
under control sooner rather than later. The longer you kid yourself, the
greater your chance of running out of money.
3Increase your savings. Save, save, save—even if it means chang- ing your lifestyle or not helping your grandchildren with tuition. The
kids have a lifetime to repay their student loans, but you’re running out of
time. If you arrive at retirement with too little money, you’re cooked.
4Wise up on investments. Among older people, there’s a stam- pede to safety. Money poured out of stock-owning mutual funds after
the panic of 2008-09, and into funds invested in bonds. Many older inves-
tors still don’t want to take a risk in stocks.
But inflation and taxes will cut the real returns on your bonds and bond
funds down to practically nothing. In your 50s and 60s—with 30 or 40
years of retirement ahead—you need to keep some money invested in
stocks for long-term growth.
I don’t mean individual stocks. For safety reasons, get rid of them—every
single share. You have no idea what is going on inside companies, includ-
ing the one you work for. Even blue chips can be laid low—look what
happened to the country’s leading banks. Are you holding on to individual
stocks to avoid paying tax on capital gains? That tax is probably lower
today than it ever will be. Bite the bullet, sell now and diversify.