By: Baby Boomer Super Saver Have you ever felt behind in your effort to save for retirement?  At one time, we wondered if we would ever catch up our retirement savings.  We needed a retirement strategy to boost our retirement savings. If you read our money story and how we struggled to get out of debt, you know that our biggest mistake was not saving money.  Once we became sick and tired of being sick and tired, we went to work to get out of debt. We cut up our credit cards and switched to a cash-only household.

[caption id="attachment_221" align="aligncenter" width="716"] We switched to cash, but still needed a retirement strategy to catch up retirement savings.[/caption]

Anything that wasn’t essential was cut from our budget.  I changed jobs to earn more money.  I took on additional jobs and side hustled like crazy.  We sold stuff.  Dinner was rice and beans. We were gazelle intense. Although we’ve relaxed a bit from the time we were actively working to get out of debt, we still don’t use credit cards and we live within our means. By focusing on our values, we are able to make better spending choices.  We don’t buy new cars, purchase fancy gadgets, or pay for cable TV because there are other things we’d rather spend our money on.

Living a more frugal lifestyle is not about deprivation, however.

We save for and enjoy a couple of nice vacations each year.  A vacation is so much more enjoyable when you know you won’t have to keep paying for it after you’ve come home!

[caption id="attachment_212" align="aligncenter" width="524"] Enjoying the beach with friends in Chacala, Mexico. Photo credit Kathy Nichols.[/caption]

Saving for vacations prompted me to start thinking more about our looming retirement years and I realized we hadn’t saved as much as we should have.  We didn’t have a retirement strategy. My husband has retired and he wants me to retire, too.  Yet we don’t really have enough money to completely fund our retirement, at least not where we’re currently living. I love life on the West Coast, but the cost of living here is high.  I worry about running out of money and not being able to enjoy the things we want to do in retirement, like traveling to visit family and exploring places we haven’t been. After getting out of debt, we were very late to the retirement savings game.  I wondered if it was too late to catch up our retirement savings. Will we have enough time?  What retirement strategy should we use?

Consider The Rule of 72 . . .

The Rule of 72 is a retirement strategy that can give a rough estimate of how long it will take to double your money, based on different interest rates.  This is an approximation because it doesn’t take into account market fluctuations, taxes, or fees, which would lower performance. Dave Ramsey advocates a retirement strategy of saving 15% of household income in tax-advantaged investment accounts, specifically in mutual funds purchased through a financial advisor. Will this retirement strategy work for us?  Will saving 15% of our household income be enough when we are starting to save for retirement so late in life? What impact will fees have on my change of life baby retirement fund? Where could I get answers?  Of course, I turned to the internet . . . I found the FIRE community online and started to get excited about the possibility of achieving financial independence.

FIRE stands for Financially Independent, Retire Early.

The concept of FIRE really changed how I looked at money and retirement.  The retirement strategy for members of the FIRE community is maintaining a super high savings rate. Many of the FIRE bloggers are millennials who worked hard for ten years, saved 40-60% or more of their income, invested the whole time and retired from their jobs in as little as ten years. They were intense about saving and that is what allowed them to retire in their 30’s and 40’s! If saving half your income sounds like a fantasy, why have so many millennials in the FIRE community been able to do it? I began to wonder if Dave Ramsey’s principle of gazelle intensity could be turned around to build wealth for retirement.  I was beginning to develop our retirement strategy:

Gazelle intensity + higher savings rate = rockin’ retirement fund!

Instead of applying the money from raises, side hustles, and selling so much stuff the dog thinks he’s next to the debt we no longer have, could we use the same strategies to boost our retirement savings? Is it even possible to catch up on our retirement saving when we are starting so late?  After all, those young FIRE’d millennials have compound interest on their side.

Retirement Strategy: Catch Up Contributions.

Some benefits do come with age.  The IRS allows those over 50 years old to contribute more to retirement accounts.  Yay! For the nitty-gritty details, read the official IRS announcement here. The quick and dirty (updated for 2019): Roth IRA Contribution Limit (under age 50)                  $6,000 Roth IRA Contribution Limit (age 50 & over)                 $7,000 Traditional IRA Contribution Limit (under age 50)      $6,000 Traditional IRA Contribution Limit (age 50 & over)     $7,000 For those with 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan (TSP), the annual contribution limit is $19,000. But if you are age 50 or over, the contribution limit increases by $6,000 dollars, to $25,000 total per year. If, like me, you are a public employee with a 457(b) deferred compensation plan, AND you are age 50 or over, AND you have not contributed the maximum in previous years, you are allowed to contribute even more in the three years prior to your normal retirement age. For 2018 the limit was $37,000 and for 2019 the limit is $38,000.  Woohoo! This Special 457(b) Catch-up Provision is part of the Section 457(b) of the Internal Revenue Code, and was amended by the Pension Protection Act of 2006.  Look into it, you will thank me. Once you’ve maxed out all the tax-advantaged retirement accounts that you are allowed to, just keep saving. Open a brokerage account, but be mindful of fees. Financial advisors charge fees.  Investment funds also have fees that can range from low to very high. Low-cost index funds allow you to keep more of your savings, and you don’t need a financial advisor to make a purchase at Vanguard, Fidelity, or Schwab.

Save and invest as much as you can.

If you are saving 40% of your income, it will take 22 years to retire.  What can you do to save more? If you boost your savings rate to 60%, it will only take 12 years to retire. According to Mr. Money Mustache, by saving 75% of your income, it would only take 7 years to become financially independent. (By the way, Dave Ramsey’s advice to save 15% of household income just won’t cut it for late-saving Baby Boomers – it would take 43 years to retire at that rate!) Another way to figure out your retirement target number is to calculate your annual spending and multiply that amount by 25. Are you living off of $50,000 per year now?  Then you will need a retirement nest egg of $1,250,000. Think you could live comfortably with less?  If you can live off of $30,000 per year, you will only need to save $750,000.

Don’t let limiting beliefs stop you from reaching your retirement goals.

Think you don’t have room in your budget to save an extra $1,000 per month? Reduce your housing costs by taking in a housemate or two. Pick up a side hustle.  Start driving for Lyft or Uber.  Deliver pizza at night and on weekends. I’m sure you can come up with other ideas to supercharge your savings rate. Old dogs can learn new tricks.  You can learn to spend less and save more. Investing in yourself also means educating yourself.  Read JL Collins stock series online here,  or get his excellent book The Simple Path to Wealth. _.