A WORKER said she had no retirement money set aside despite selling her home for $518,000.
Mary from the Palm Beach area of Florida called financial expert Dave Ramsey to ask how she can start saving money at age 59.
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The woman explained Show that she had recently sold her home and was willing to downsize, but wasn’t sure how to do so and save money for her upcoming retirement.
Mary also said she had 30 months left on her $400-a-month car lease, but no other debts, after using some of the money from the sale of her house to pay them off.
She added that she had $290,000 in her bank account after paying off those debts.
Mary also explained that she was self-employed as an accountant for a small business and earned $70,000 a year.
His initial plan of action included buying a house for around $300,000 and taking out a small mortgage to pay off the amount.
Ramsey disagreed with this approach and advised Mary to buy a house for about $200,000 in cash to avoid a mortgage.
“If you don’t have a paid off house when you finish working, you’re going to have a big problem because it destabilizes your whole situation to have a mortgage when you’re retired,” he warned.
The financial expert told Mary she needed a fully paid-off house and a nest egg by age 70.
Ramsey’s main advice revolved around Mary’s housing situation and having her downsize her new home.
He explained that he understood that a $200,000 home in her area of Florida would be a step down from what she was used to.
“Which in your area isn’t exactly a house,” he said.
“It’s a nice house, certainly not a shack, but it’s a long way from where you lived.”
He explained that he would then pay off her car or sell the vehicle to buy a cheaper one.
With Ramsey’s plan, Mary would have about $50,000 to start investing in her retirement fund.
Where to save retirement money
There are several different places you can put the money you have saved for retirement. Each has different tax advantages, but not all are available to everyone.
401(k) – an employer-sponsored retirement account. Contributions are made pre-tax and many employers will match a certain percentage of your contributions. Taxes are paid when funds are withdrawn in retirement.
Roth IRA – an individual retirement account. Contributions are made after taxes, but withdrawals in retirement are not taxed.
TSP (Thrift Savings Plan) – a retirement savings and investment plan for federal employees and members of the uniformed services. They work similarly to 401(k)s, but may have more limited investment options.
Pension – an employee benefit that obliges the employer to make payments to the employee upon retirement. Pensions are becoming increasingly rare.
These methods included mutual funds and Roth IRAs, but also kept a tight spending budget.
Ramsey estimated that his plan should leave Mary with enough money later to sell her smaller property and move up.
“I would live in that $200,000 house for three to five years while my nest egg was roaring and when it’s roaring and growing, it’s on fire,” he said.
“So I’m talking about saving a little to pay cash to move house.”
The financial expert finally added that Mary could become a millionaire in 14 years if she went through the Financial Peace University.
“Especially in your situation, because you have $209,000 in the bank, you’re off to a good start,” he said.
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