A CALL TO THE Dave Ramsey Show was struggling to save for retirement, facing $42,000 left in student loans at age 60.
The retirement expert shared three steps the caller could take to achieve wealth.
Don, from Kansas City, Kansas, called the Dave Ramsey Show looking for retirement advice.
At the episodeDon explained his financial situation.
The 60-year-old explained that he had to start over at age 50 and has paid off $172,000 in debt over the past 10 years.
His current salary is $55,000, but it fluctuated between $40,000 and $55,000 when he paid off the debt.
He added that he has a $100,000 nest egg and is close to being debt-free on top of his $42,500 student loans.
Don said he currently puts 30% of his salary into a Roth, but questioned whether there has been a better financial move.
He asked Ramsey if it would be better to reduce his Roth contribution to 15% of his salary and instead make his student loan payments.
Don hypothesized that he could invest $1,500 every month toward his student loans and finish paying them off in 30 months.
SHORTEST PATH TO WEALTH
Ramsey offered Don an alternative strategy for optimizing his retirement savings.
He said the shortest path to riches involved three steps:
- Get rid of debt
- Create an emergency fund
- Save for retirement
“We would like to teach you how to temporarily stop all investing and dump everything you can from your entire life into that stupid student loan and get rid of it,” Ramsey said.
“Once it’s gone, we take everything from the budget and make sure you have an emergency fund for three to six months of expenses.”
Don said he had $7,800 saved in his emergency fund, and Ramsey suggested taking $6,800 from it and putting it toward his student loans.
After doing so, Ramsey advised Don to focus his entire budget on the remaining $35,000, estimating it would take him about nine months to finish paying it off.
“You will be working extra, it will be beans and rice, rice and beans,” Ramsey said.
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 Taxes are paid when funds are withdrawn in retirement.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.
Once your student loans are paid off, Ramsey suggested fully funding your emergency fund.
“So, without a payout in the world and that nice buffer, you restart your retirement and hit it hard,” he said.
In related news, a money expert paid off $173,000 in student loans in less than two years with her seven tips.
Additionally, a 73-year-old man with no pension and $2,000 a month in student loans received three “better moves” from a financial professional.
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