She's 66 With Just $10,000 Saved - Dave Ramsey Says She'll Be 'Okay' Anyway

Dave Ramsey is one of the best-known personal finance experts. He typically gives hard truths and tough love when it comes to achieving financial fitness. So, when a 66-year-old caller phoned into his radio show with very limited retirement savings, many listeners may have been surprised to hear him tell her she could still retire if she followed his advice.

Here is what Ramsey encouraged her to do, as well as the lessons that he recommended to all his listeners.

Ramsey says it's possible to retire if you're 66 with limited savings

A caller named Mary told Ramsey she had $10,000 in emergency cash, $10,000 in a 401(k), and a household income of $125,000. She also mentioned that she didn't have a pension, and neither did her husband. They did not own a home and had been renters for many years.

She wanted to know if they could buy a home and retire one day. Ramsey gave her a few action steps to take and made sure she knew that her financial habits would need to change for her to reach her goals.

Become debt-free before retirement and free up cash flow

Mary and her husband paid off $80,000 of debt over the past five years, including two car loans. Paying off large car loans frees up cash flow that Mary can use to fund her retirement accounts. 

When Dave Ramsey gives advice and interviews about retirement, he frequently emphasizes the importance of becoming debt-free before retiring. In fact, Ramsey recommends becoming debt-free before investing at all. So, Mary is on the right track because she paid off her car loans.

Having debt, especially high-interest debt and high car loans, makes it challenging for people to meet other financial goals. The fewer expenses people have as they near retirement, the more cash flow they'll be able to funnel towards their retirement lifestyle.

Turning 67 ends the Social Security earnings test

Age 67 is the full retirement age. For people working until age 67, the government may reduce some Social Security benefits based on earnings. However, once people reach age 67, the Social Security earnings test ends. Mary explains that she will start working full-time and will turn 67 soon. Once she turns 67, the test will no longer apply.

What that means is she can work full-time and continue collecting Social Security without having any of her wages reduced. This will increase her monthly income and, by extension, the cash flow she can use to save and invest.

Make sure your home fits your cash flow and budget

Mary said that she wants to own a home one day, and Ramsey encouraged her to purchase a modest home on a short 10- to 15-year fixed mortgage while still investing 15% of her income. Ramsey strongly suggested that she purchase a home, such as a small house or condo, to keep her costs down and maintain her primary focus on her retirement savings.

Having an affordable home with a shorter mortgage term means that, at some point in the future, Mary can be debt-free, including her mortgage, which would allow her to have more income to support her retirement lifestyle.

Working extra years can give workers time to catch up

One of the hard truths Ramsey shared with Mary during the call was that she would likely need to work for several more years. Continuing to earn full-time income in addition to her Social Security income would help give Mary additional time to add to her retirement nest egg.

Working for extra years also helps reduce the amount of time that their retirement funds need to last, and it gives the investments they currently have time to grow and compound.

Creating a six-figure nest egg is never guaranteed

Although Ramsey said that Mary could create a large enough nest egg to retire one day, it's important to know that investment returns are never guaranteed. 

It's possible that Mary could make steady contributions, work full time, and invest in the market, but the market could take a downturn, which could lead them to have to reevaluate their retirement plan. For that reason, it's important to have an emergency fund in addition to retirement savings.

Establishing positive money habits is key

Ultimately, the biggest contributor to Mary's success will be whether or not she can develop the habits to live modestly and invest consistently. That may involve changing money habits that have been ingrained for decades. 

However, if Mary is able to start investing more of her income while continuing to reduce her expenses, she may be able to retire in the future.

Bottom line

Ramsey used Mary's call as a warning to younger listeners and said investing over time and starting early makes saving for your retirement goals much easier. 

When you start investing later in life, it's still possible to retire. However, it will involve sacrifices such as working longer and having a more limited retirement lifestyle.