Wednesday, May 16, 2007

How to Retire Without Saving

Many people can't save. Sometimes it's for good reasons--illness, an aged parent who needs support, a child with special needs, or too low an income. Other times, the reasons are not so good--serial spending, reckless investing or indifference to the future. Whatever the reasons, good or bad, these people need to retire, too. How can they do it? Here are some ideas.

1. Get a job with a pension. Government jobs, military service, law enforcement and educational jobs usually offer pensions. Some of these employers also offer retirement savings accounts similar to the 401(k) plan--the federal government's Thrift Savings Plan is an example. These jobs aren't for everyone. Governments are often bureaucratic, and action-oriented people may have a hard time fitting in. Teachers sometimes find that their jobs involve as much babysitting as teaching. Military and law enforcement personnel perform yeoman's duty for everyone else, but they have to be disciplined, motivated and able to deal with a highly structured and high-pressured environment. It often takes 20 or more years to qualify for a pension, so this isn't a cakewalk. But if you think you're cut out for one of these jobs, and your retirement savings hover around zero on a good day, give it a try.

Corporate pensions continue to exist, especially at the larger, old line companies. But most corporations are fleeing the traditional defined benefit pension (the good kind) faster than rich folks left New Orleans before Katrina. New hires often are unable to participate in the older pension plans. If you have the opportunity to participate in a corporate pension plan, consider yourself lucky. But don't rely entirely on the company pension. You may be disappointed.

2. Buy a house and pay off the mortgage and all home equity debt. Many people who can't put $20 into a savings account always manage to pay the mortgage one way or another. The house can be used as a vehicle for forced savings. Just don't mess things up by taking out a home equity loan or home equity line of credit. You'll get only a finite amount of home equity in your life. If you take out home equity debt, you use up some of your finite lifetime home equity. Yes, you can repay the home equity loan, but you have to use cash that could otherwise have been devoted to retirement savings. If you enter retirement with a home that's free and clear of all liens, you'll have a valuable asset that could add much to your golden years.

3. Work longer. The longer you work, the more your Social Security payments will be. We explained how this works in our earlier blog, Mysteries of Social Security Retirement Benefits, Part 1 ( An added benefit of working longer is that it gives you more time to save, and, if you are lucky enough to have a pension, it may help you earn a larger pension. While working longer isn't the fastest way to the cabana on the beach, you may end up with a nicer cabana.

4. Stay together. This is something we discussed in our blog "Love in a Time of Financial Planning--Part Deux" ( Two people together can often do better than if they were alone. Consider the following example. Each member of a couple gets $15,000 in Social Security benefits, and has $250,000 in savings, enough to allow withdrawal of $10,000 a year in retirement beginning at age 65. Individually, they'd each have $25,000 a year, enough to be okay, but not more than that. Together, they'd have $50,000 a year, enough to be solidly middle class. The idea of staying together for financial reasons conjures up images of bedraggled housewives stuck in loveless marriages with unshaven, potbellied louts who drink too much and smoke cheap cigars. That's not what we mean. Sometimes, no relationship is better than a bad one. But you have many reasons to make your relationship work and your financial well-being may be one of them.

None of these strategies will get you luxuries. You need savings for that. But if you feel like you're financially lost, don't give up. There's still hope for you.

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