If you are over 50 and are fretting about retirement, you’re not alone. Because we understand that, Viva Fifty! asked a financial expert what to do if we are nearing the age of retirement but not quite ready for it financially. To this end, we interviewed David Bach, founder of Finishrich.com and one of America’s most prolific and bestselling financial authors of our time. He’s had 9 consecutive New York Times bestselling books, including the #1 International bestseller The Automatic Millionaire. He is also the Vice Chairman of Edelman Financial Services, one of America’s leading independent financial planning firms, working with 26,000 families and managing over $14 billion in assets. If he doesn’t have the right answers to our questions, who does, right? So, here’s what he shared with us:
Viva Fifty.- What is the first thing a 50 to 60-year old should do if they have little to no retirement? Some of our audience hails from other countries and are immigrants in the U.S. so they have a short work history here.
David Bach.- The first time I went on Oprah with my book, The Automatic Millionaire, she turned to me and said, “David, what about the people who are struggling and living paycheck to paycheck? If you can barely pay your bills how are you going to save money?”
I shared with Oprah and her millions of viewers and I continue to share that self-made millionaires know a secret to building wealth that is really a very simple “secret”. The secret is that self-made millionaires in America do one simple thing: They pay themselves first.
Before they pay anyone else, they pay themselves first.
And this is exactly what your readers need to do. I have seen very ordinary people with very ordinary incomes achieve extraordinary wealth by simply applying the “Pay yourself first” system.
At Edelman Financial Services where I am Vice Chairman, we manage over $14 billion dollars for over 26,000 families. We’ve seen firsthand through decades of working with clients, what works and what does not work.
Consistently saving for retirement automatically is what works.
“Pay yourself first” means when you earn any income, the first person you pay is you. Before you pay any bills, rent, credit cards, mortgage, car payments, you name it…taxes, the first person you pay is you. Whatever you earn an hour, your goal should be to set aside the first hour of your income every day to pay yourself. That money needs to go directly into a tax deductible retirement account. If you have a 401k, 403B Plan or 457 plan – use it. If you don’t, open an IRA account. But the goal is really simple, get yourself saving the first hour a day of your income directly and automatically (before you can spend it) into a retirement savings account. This is how you buy yourself a retirement in the future.
Also read: Retiring the definition of retirement
Viva Fifty.- Many of today´s mid lifers are struggling financially: the Great Recession, bankruptcy due to health problems, divorce … may have left us reeling. How do we save for retirement when we have trouble making ends meet?
David Bach.-You have to find the money. The best way I know to find the money is to look at what your Latte Factor is and cut it. The Latte Factor is my metaphor for looking at how you spend small amounts of money every day on little things. It could be lattes at Starbucks, cigarettes, bottled water, eating out lunch every day. The key is that you look at what you could cut back on and how you could save $5 to $10 a day. You have to start somewhere and the time and place to start is now and right where you are. If can save $10 a day, that’s $300 a month, and that’s $3,600 over the year and that of course doesn’t include what you might accumulate once that money is invested.
Viva Fifty.- What is more important, saving for retirement or paying for life insurance for our kids when we are mid lifers?
David Bach.- Life insurance is a protection plan for your family in case you die. If you have a spouse and children, you need life insurance. We recommend to our clients that they buy term insurance because it protects the family and it’s low cost. Then we recommend to our clients again that they pay themselves first, funding their retirement accounts in a well diversified and professionally managed portfolio. Our portfolios for our clients are globally diversified into 19 asset classes, over 40 countries. We use institutional mutual funds with our clients, and yet we work with clients with accounts starting as small as $5,000—and ranging to millions.
Viva Fifty.- What are your suggestions for investments between 50 and 70? If you have a small IRA what kind of investments can we make at this age to supplement our small retirement?
David Bach.- It’s incredibly simple yet often complicated. You need a diversified asset allocation approach to money management. That means a portfolio that is diversified between stocks and bonds, and countries.
Our portfolios at Edelman Financial Services are globally diversified into 19 assets classes, over 40 countries. We use institutional mutual funds with our clients, and yet we work with clients with accounts starting as small as $5,000—and ranging to millions.
We also have an online portal where you can quickly run through our risk tolerance questionnaire and see in just a few minutes, how a portfolio might look for you.
Viva Fifty.- What should we be telling our children about retirement so they don´t find themselves in the predicament we are in?
David Bach.- Start saving when you are young! And learn about money when you are young. The number one thing people in their 50s say when they read my books is: “if only I found your books when I was younger.” Everyone older wishes they had simply started saving when they were younger and wishes they had learned about savings sooner.
To anyone reading this who has kids under the age of 50, get them to read The Automatic Millionaire. This little book will change their entire outlook in a matter of hours about saving for the future. It’s the road map they need to get on the right the track. You can easily find it also in the library for free!
And remember! The Latte Factor—a latte spurned is a fortune earned. Small amounts of money can change your whole life financially if you redirect the spending to savings.
Viva Fifty.- Anything you´d like to add taking into account that our audience is bilingual and mostly Latinos 50-plus?
David Bach.- Money is linguistically agnostic. The beauty of personal finances is that it translates around the world. Most of my books are also found in Spanish.