I’m 40, In Debt & Haven’t Saved for Retirement: What to do When It Feels too Late

If you’ve been reading the blog for a while, you’ll know that I’ve been paying off debt that I accrued in my early to late twenties. My debt was divided between credit cards and student loans. I’ve recently paid off my credit cards and have been going hard on my student loans. The next step for me is to invest in retirement. I’ve been following the Dave Ramsey “Baby Steps” to pay off my debt. And I’ve been excited with the results. Also, as a side note, these are only my experiences in researching what I need to do to retire. I am in no way an expert in the financial field. So this should only be taken as a rough guide to start asking questions. Speaking with a qualified financial advisor is the best way to get sound financial advise. So don’t take this article as the final word on investing.

The Basics

Along with paying down my credit card debt, I’ve learned how to write and follow a budget. This is how I’m learning to care for my financial needs. I have a small sum of money in savings for the first time ever and am making serious progress on my student loan debt. I’ve been so excited about the progress I’m making on paying off my debt, that I completely overlooked that I’ll be paying into retirement later than most people usually start. This has me a little worried about what my future is going to look like. So I started doing some research on the subject. But before I jump into saving for the future, I first had to look at what got me here in the first place.

Planning for the Future by Looking at the Past

When I first got into debt, I had no idea what I was doing when it came to finances. Much in the same ways I didn’t know how to care for and tend to my nutritional needs, finance was another area in which I was illiterate. I was living paycheck to paycheck for most of my adult life. And as soon as I was able to borrow money, I jumped at the chance. Looking back now, I’m not sure what the draw was. I was constantly in debt, all my credit cards were maxed out and I was missing payments and paying hefty fees for it.

But there was something about it that had me hooked. I was buying things I didn’t need, and using somebody else’s money to do it. And when it came time to pay for college, I treated student loans much in the same way I was treating my credit cards. They offered me the maximum payout amount and I took it each time. I didn’t know that I could accept ONLY what I needed from the loans. Not the entire sum. But the way I was living, I don’t think I would have chosen differently had I known.

I was accumulating so much debt, that I could have bought a small house in Western Massachusetts with the amount of loans and credit card debt I had. But I kept spending. And I hadn’t even thought about what I was going to do when it came time to retire. So when I finally took financial responsibility for my life for the first time in my early thirties, the outlook for my future was sobering.

I’m Paying Off My Debt, But What do I do About My Future?

I’m a little less than halfway through my debt currently. And the idea of being forty and just beginning to think about retirement, almost had me in panic mode. But here is where it is important to stay in control of your emotional world. And also know that just because you’re starting late, doesn’t mean that you are destined to be poor in your old age. You have options.

Make a Plan & Stay Fluid

The first thing I did was to come up with a date that I would be debt free. I’ve done this a few times already. It’s important to stay fluid while you go over your numbers, because Surprises will come up. And you will be met with setbacks. But finding your debt free date not only gives you a tangible goal to achieve, but also helps to keep yourself accountable for your progress. I had a few setbacks along the way. I had to buy a new, used car and my pay fluctuated a few times when I changed jobs.

But each time a new challenge arose, I met it by reassessing where I was, what my new circumstances were, and adjusted from this new place. One thing that kept me on track was, staying persistent. The closer I came to paying off my high interest debt, the closer I come to saving for my retirement. This is one of the main takeaways of Dave Ramsey’s baby steps. The less high interest debt you have, the more prepared you will be for saving for your retirement.

So when you’re finished paying interest on top of the money you owe, you’ll be able to save more money. And invest the money you’re saving later on. That’s why it’s so important to pay off your high interest debt first. To free up your capital for your future. So paying off debt is investing in your future. In that you will be the beneficiary of your hard work. Not a credit card company or bank.

I’ve Paid Off My Debt, What Next?

After you’ve paid off your debt, take a deep breath, and appreciate what you’ve just achieved for yourself and your future. This is a huge step in reaching financial independence. The next step, according to Dave Ramsey, is to set up an emergency fund. This is usually 3 to 6 months pay.

Emergency Fund

Being in debt for so long, I’m opting for the 6 month fund. Feeling financial secure is important to me. Especially since I’ve been living paycheck to paycheck for most of my life. It’s also part of the Ramsey baby steps to have a thousand dollar emergency fund while you’re paying down your debt. Just in case something comes up that you haven’t planned for. It’s not much, but when you’re 95k in debt as I was and you suddenly get hit with a five hundred dollar medical bill and you’re living paycheck to paycheck… That emergency fund is the difference between talking the hit in your budget somewhere else, and feeling secure in knowing you can take care of the small problems that come up along the way. Life happens. It’s best to be prepared when it does.

After your emergency fund is set up, now is the time to start looking towards investing for your retirement. The usual routes for this is through either a 401k, traditional IRAs and Roth IRAs. The difference between the two accounts are, traditional IRAs are taxed when you take your money out, as opposed to Roth IRAs. With Roths, you are taxed when you put your money in.

401k

A 401k is a retirement account that is usually offered by your employer, and has a relatively low investment risk. You can add up to $20,500 dollars into your 401k annually in 2022 and an extra $6,500 if you’re over the age of 50. Which makes this a good overall option. And if your employer matches your contributions, meaning they put in a percentage of what you pay into your account each year, this is a no-brainer. That’s literally free money! This is a great entry level option.

Roths vs Traditional IRAs

Roths

From what research I’ve done, an important aspect of saving for retirement is the tax advantage you get when you decide to take your money out. If you know you are going to be in a higher tax bracket in retirement. For example, say you will have a lot of passive income such as rental properties, something I’ll be going over later in this article. You may want to be taxed when you put your money into the account. Using a Roth IRA, you will be taxed when you’re rate was lower. Saving you money by paying less in taxes.

Traditional

But if you plan on being in a lower income bracket when you retire, a traditional IRA may be the way to go. This way you’re contribution is taxed when you receive your payments. This also has the advantage of letting your money grow tax free and with compounded interest. So you’ll earn more with your investments. Whichever path you choose, it’s best to have a plan for what your life may look like when you start pulling money out in retirement.

Savings Vehicles

How much should we contribute to our funds once we set them up? Conventional wisdom suggests that we sock away between 15 and 20 percent of our income a year. So depending on what you are making and your savings vehicle, you may have to spread your savings out. Because you are only able to contribute so much to traditional or Roth IRAs.

As of 2021, the limits are 6,000$ for each fund and 7,000$ for those over 50 years of age. And with 6,000$ a year, if you start at age 40, that could translate to a little less that 475,000$ by age 65. That is a huge improvement over receiving social security alone. For a more in-depth look at how IRAs work, check out this article on Investopedia.

But if 6,000$ is less than 20% of your income, your going to need to find ways to diversify your retirement savings. Other vehicles include, mutual funds, money market funds, real-estate or physicals. These are only a few options available. But ones worth looking into.

Mutual and Money Market Funds

These types of funds are considered low risk investments. Mutual funds are a group of securities that are managed by investor professionals. They consist of things such as, stocks, bonds and securities. This vehicle is made possible for the individual by pooling together funds from many investors. As I said above, they are considered low risk. So they are a great way to pad your retirement if you have more than the maximum IRA contribution to squirrel away.

Money market funds are investments in low risk security funds. So they don’t have the highest percent interest payout. But they are solid supplements to your retirement fund. They are however not backed by the FDIC. So it’s best to research funds with a history of promising returns. Slow and steady is the end goal for mutual funds.

Real-Estate

There are a few ways to invest in real-estate. One way is by flipping homes as seen by Chip and Joanna Gains on “Fixer Upper”. But another way, and the one I’ll be talking about, is buying rental properties. With rental properties, you’re able to purchase a home or apartment building and rent out the units. The idea is to use the rent, paid by your tenants, to pay off the house’s mortgage. Then once you’ve paid for you property in full, the rent becomes income. If you’re able to pay off the mortgage before you collect your IRA, you’ll have a consistent stream of income coming in after you finish with your career.

There is a lot to consider though, when taking on a rental property. You’re responsible for the general maintenance and upkeep of the property. For finding tenants to occupying the building and taking care of any issues that may arise. It can be a large responsibility. So it’s worth considering how much time you have to invest if choosing this strategy. But if planned well, it could definitely be beneficial during your retirement years.

Physicals

What I mean by physicals is, gold, silver, copper or platinum. My father was in the jewelry and coin industry. So this is something I’ve heard a lot about growing up. It can be daunting. Looking into investing in something like gold. The average price per ounce of gold, as of this article’s publishing is, around 1,900$ an ounce. With bullion being sold most commonly in ten ounce bars, according to Forbes Adviser, this can end up becoming a costly investment.

Luckily, there are some more accessible ways to invest in gold. Gold coins are one way to squirrel some money away for retirement. The American gold eagle is sold in a half ounce to single ounce coins. And is sold at market value. This is a great way to put up 1,000$ at a time, while also getting you closer to your retirement goals. It’s also worth noting that if you spend over a thousand in physicals, the purchase is tax exempt. So an ounce of gold is the cheapest way to buy into this market.

Start Planning

Here are only a few options if you’re looking into retirement a little late in the game. It may take some time and planning, but it will literally pay off in and for your future. So don’t panic! And don’t give up hope. The way to retirement may seem difficult now. But with some persistence, your efforts will carry you comfortably into your golden years. Peace, and thanks for reading : )

Image Credits: “Retirement Jar” by aag_photos is licensed under CC BY-SA 2.0

Updated: 10/28/22

Author: nolabelsliving

Social worker by day, blogger by night. I have a lot of lived experience which is why I started my blog. I was not given any direction when I started out on my journey, but have been blessed with some amazing support and guidance along the way. Just want to give back a little of what I've received : )

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