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Planning for retirement can be daunting, especially if you are in your 50s and don't have a solid financial footing. That's where one Reddit user finds herself after a financially damaging divorce.
The good news is it's never too late. Here's a look at her financial situation. Then, financial advisors weigh in on next steps for the 55-year-old with no savings, retirement funds, or home ownership, hoping to move beyond paycheck-to-paycheck living.
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The financial situation
What would you do if you found yourself divorced at 55 without any savings, retirement funds, or homeownership? One mom shared her stark financial position in a recent Reddit post.
After her husband abruptly left her for another woman, she discovered that he hadn't been paying the mortgage for months. When he walked out, he left her and her children with no savings and no home.
In the intervening 10 years, she returned to college and completed a degree in health care administration, ultimately landing her a job that pays $20 per hour without benefits. She takes home only $2,500 a month. With retirement looming and no savings, she wants to know how she can prepare her finances for retirement and possibly buy a home to enjoy in her golden years despite her lower salary.
We spoke to some financial advisors and shared their opinions below.
Set realistic expectations
When starting from scratch at 55, like our Reddit user, your financial future might not look exactly like what you had in mind.
"The first thing you need to do is set realistic expectations," says Thomas J. Brock, CFA and CPA at Annuity.org. "You probably cannot retire anytime soon, and you may never own a home or condo."
Coming to terms with the realities of the financial situation might make moving forward easier. But staying positive is important.
"Think 1% better each day, not 'I need hundreds of thousands saved in a few years,'" said R.J. Weiss, CFP and founder of The Ways to Wealth.
Stick to a bare-bones budget
The financial advisors we spoke to noted that as she gets started, it's critical for her to trim her expenses as much as possible.
"Greatly reduce any discretionary spending, and focus on saving," said Brock.
In order to make such big changes, she'll need to focus on the biggest expenses. For example, housing typically takes up the largest percentage of one's income. If possible, they recommended finding a way to slash that cost.
"That may mean downsizing, renting a room, or applying for affordable housing programs," said Andrew Latham, CFP and content director at SuperMoney.
Pay off debt
As she gets her finances under control, she needs to clean up her debts, which can drain her money.
"Any high-interest debt, like credit cards, should be paid down aggressively since those interest rates typically exceed any investment returns," said Latham.
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Start with an emergency fund
Living without savings can put you in a very precarious position. After clearing up high-interest debts, Brock recommended she focus on building an emergency fund.
"Strive to build a cash reserve that amounts to 6 to 12 months of expenses," he said.
Start saving for retirement
While saving early for retirement is ideal, that wasn't possible for the Reddit user, and it's better late than never. As she stabilizes her financial situation, Latham recommended making it a priority to start building a retirement nest egg right away.
"A Roth IRA is a good starting point," said Latham, "Contributing $200 a month at a 7% return could grow to about $34,000 in 10 years. It won't fund full retirement, but it helps."
Increase your income
If her take-home pay is $2,500 per month, it's going to be difficult to amass significant savings quickly. Of course, earning more can help her save more money.
"Once expenses are under control, increasing income is the most powerful way to change course," says Latham, "At 55, there's still time to upskill."
Latham also points out that even a raise of $5 per hour would add around $10,000 to her income each year.
Though the Reddit user noted that there are no opportunities for a raise at her current job, the experts advised taking a look at what other skills she might have. For example, selling crafts or picking up a side hustle that you enjoy, like taking on interior design clients, could help grow your income without draining yourself.
"Either your income needs to increase or your expenses need to decrease, and at $2,500 per month, there isn't much room left to cut," said Weiss. "It's going to take some effort to increase your income, but that's got to be the focus."
Make careful Social Security decisions
As you approach retirement age, making careful Social Security decisions is important for all retirees. But it's especially important for aging workers with limited retirement resources like our Reddit user.
For many, it's tempting to claim Social Security benefits as early as possible, at age 62. But that cuts into your monthly benefits. For many, it's worth waiting to claim their benefits, even if that means extending their working years.
"Working part-time into your late 60s, even 15 to 20 hours per week, can help delay Social Security and stretch savings," says Latham.
Consider working in some capacity for the long term
Retiring at age 65 might feel like a rite of passage. But without sufficient savings, retiring at the traditional age might not be a good idea. If your savings and Social Security payments won't support a dignified retirement, consider extending your working years.
"Retirement might not be full stop at 65, but it can still be stable and dignified," says Latham.
Depending on your situation, you might not remain in your current job forever. But looking for ways to earn money, even on a part-time basis, can help you cover costs as you age.
Bottom line
Sometimes life can deal you a difficult financial hand. Whether you made a surprising money mistake or simply had some bad luck, recovering your financial footing can take time and effort. Even though the road might not be easy, the eventual financial security may be worth the hard choices you'll have to make along the way.
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