A CALLER to The Dave Ramsey Show sought financial advice regarding retirement.
She didn’t have much money saved and needed help setting up a financial path for success.
Mary from Florida called into The Ramsey Show for retirement advice and outlined her situation.
“I’m 59 and I do not have any money in retirement,” she said.
She explained that she had recently sold her home for $518,000 and paid off almost all her debt.
Mary also had $290,000 with $10,000 in an emergency fund, as well as a car lease with 30 months remaining at $400 per month.
The self-employed woman made around $70,000 per year with her small business in bookkeeping.
SPEND TO SAVE
Ramsey suggested that Mary needed to spend money to effectively save for retirement.
The host highlighted the reality of Mary’s situation, pointing out that she needed a nest egg and a paid-for home by age 75.
“We currently have $290,000 to do that with and we have $70,000 a year to do that with,” he said.
“If you do not have a paid-for house when you’re through working, you’re going to have a major problem because it destabilizes your whole situation to have a mortgage when you are retired.”
Mary told Ramsey that she wanted to stay in the $300,000 for a home. She considered investing $200,000 into it and taking a small mortgage for 10 years.
Ramsey advised against this saying: “Every dollar we pay into this house obviously means we don’t have it in a nest egg and borrowing it doesn’t fix that.”
“You’ve still gotta pay the $100,000 off and that’s still $100,000 that’s not going into my retirement nest egg,” he said.
Instead, Ramsey suggested that Mary do three things.
- Buy a Home
He first advised Mary to buy a home for around $200,000 cash.
Ramsey recognized this as “a pretty far step down from where you were living,” and asked her to bear with him until he was finished explaining.
2. Buy a Car
Ramsey then suggested that she either do an early buyout on her current car or sell it and pay cash for another car.
He said that Mary could spend around $10,000 to $20,000 doing so – “Whatever it takes, let’s get out of this car lease, no more payments.”
3. Start Saving
Ramsey noted that if Mary paid off a home and car, then she would have zero payments and around $50,000 to start the investing process in good mutual funds.
He suggested that she load up a SEP and a Roth IRA, and work to increase her income by upping the number of accounts she keeps books for.
LOOKING FORWARD
Ramsey suggested that Mary downgrade the home she’s in, but added that she wouldn’t have to stay in the home once she built up wealth.
He advised her to save around $500,000 for retirement over a few years, and then said she could “move up in house.”
After building up her nest egg for around three to five years, Mary could opt to pay cash for a home that cost around $400,000.
“That means we’ve gotten past the danger zone, but you retiring with zero money or close to zero money and a nice paid-for house is not a plan.”
“I think you’ll be okay if you do all of this and you live on a tight budget… that’s a really good mathematical system I just gave you there and it will work. I promise you it will work if you push it through,” concluded Ramsey.
In related news, a couple in their mid 60s with $4.1 million is still “uncertain” about retiring – expert told them focus on “foundation.”
Also, a 73-year-old with no retirement and $2,000 monthly student loans was given three “better moves” to get by from a financial pro.