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Like many older Americans, Tom from Lancaster, Pennsylvania is approaching retirement with nothing saved.
After witnessing his father die six months before retirement and suffering a heart attack himself, he went on a spending spree: “I was like, ‘I’m going to live like it’s my last,’ because you just don’t know,” he told hosts of The Ramsey Show during a recent episode.
“I think that’s where I fell into a trap.”
Nevertheless, as Tom, 60, told the co-hosts, he’s determined to dig his way out of this trap rapidly — and his game plan was a surprise even to them.
Tom’s family doesn’t have a mortgage, so they will be debt-free after their consumer credit is paid off later this year. To maximize his chances of retiring in a few years, Tom intends to max out his retirement accounts — the 401(k) and Roth IRA.
Ramsey Show co-host George Kamel recommends using the catch-up contribution room available to someone of this age. The IRS allows workers over the age of 50 to make additional contributions to their tax-advantaged retirement accounts every year.
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Tom also intends to sell the family home and downsize to boost his chances. Downsizing has become more difficult in recent years, however, and only 5% of people over the age of 65 report moving between 2016 and 2021, according to Bloomberg.
Read more: Rich, young Americans are ditching stocks — here are the alternative assets they’re banking on instead
Approaching retirement with debt instead of savings isn’t unusual. U.S. Census data suggests that only 58.1% of baby boomers, older than 56, had at least one retirement account as of 2020. As for what’s in those accounts, by 2022, thosesomeone aged between 55 and 64 had a median debt balance of $90,000, according to data from the Federal Reserve’s Survey of Consumer Finances.
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Even Tom’s spending spree after an existential crisis isn’t unusual, with 27% of American adults now “doom spending,” according to a survey by Intuit’s Credit Karma. Dreadful news about home affordability, inflation, geopolitics and climate change areis impacting the way Americans save and spend.
What is unusual is Tom’s determination to retire by 65. While the average age of retirement in the U.S. is 61, Tom’s lack of savings and debt totalling $26,000 will make it challenging for him to retire comfortably, to say the least.
If you want to pay downget a hold of your debt before nearing retirement, you should consider consolidating your debt.
However hard it will be, Tom isn’t waving the white flag yet. Instead, he’s determined to get back on track.
After paying off debt, Tom believes his family will have excess cash available to start saving. He has a plan in place, but called The Ramsey Show to find out where he should invest his savings to get the most returns.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.