Debt, Frugal, Personal Finance, Retirement

A Life Without Debt: Building the Retirement Nest Egg

Debt free living has one important benefit that many people don’t consider at first. Sure, it makes bill paying easier and it lets you save for vacations and other fun things, but it also lets you save big sums for retirement. When all of your money goes to servicing debt, not only can you not pay for things like vacations, new appliances, or cars, you also can’t save for retirement. Or, if you can squeeze out a little for retirement, it’s probably not enough to meet your future needs.

Many people have no idea how much money they’ll really need to retire in the way that they dream about. Maybe they’ve run a calculator or two, but chances are they haven’t given it serious thought. They just assume that it will all work out somehow, so they continue to buy things on credit, figuring that paying the monthly payments is enough. Saving will come another day.

Of those that have given retirement serious thought, many of them still aren’t saving enough. They continue to rack up the debt thinking that they’ll save for retirement “later.” Do you know how fast “later” sneaks up on you? One day you’re twenty-five and then the next you’re forty. And from there it’s not far to sixty-five. Then you look around and think, “Huh. I have to keep working because I don’t have anything saved.” If you had started at twenty-five, you’d have a nice little nest egg to draw on.

The thing is, even a couple hundred thousand dollars isn’t going to cut it, especially if you have health issues or you want to travel a lot. To live in any kind of comfort for more than a few years, you’re going to need at least a million dollars. And more is better. Fidelity reports that the average 401K balance is only $62,000 which is nowhere near enough money. Even if some of that average is made up of young workers with years to go before retirement, the average is also made up of many who are closing in fast on retirement. That $62K isn’t going to last a year if you do any kind of spending.

Sure, you may have Social Security benefits coming in (but I wouldn’t bet on it) and maybe a home you can sell for a profit, but where is the rest of that money going to come from? Most people seem to assume some sort of magic will happen and money will appear. So they continue to finance large and small purchases, living only for today and heedless of the distant future. It’s not that most people don’t have a desire to save, it’s just that they prioritize so many things above it that it never gets done. The cruise vacation, the bigger home (when the old home was fine), the upgraded appliances (when the old ones still worked), the nicer cars, and the bigger TV’s all come at the expense of saving for the future. By the time they’re done improving their lifestyle of today, there’s nothing left for tomorrow.

I hear people say, “Well, I might not live to retirement and I don’t want to miss out on the fun in life.” I’m not saying that you can’t have any fun in your youth and that you have to only plan for the future. I’ve had tons of fun, but only fun that I could afford to pay cash for at the time. I pay my bills, then fund my future needs (short and long term), and then have fun with what’s left. Yes, there have been some years when I didn’t have a lot of fun because there wasn’t enough money to go around. Yes, there were years when I made that appliance stretch a little further and prayed that the car would last. I don’t get to do or have everything that I want when I want it. I have to choose between options and sacrifice something in order to get something else. But I’ve always known that I’m going to want to quit working one day and have other kinds of fun. And when I’m too old for fun, I want good care in good facilities. I don’t want to be at the mercy of the State. I’ve laid my plans with those goals in sight and sought balance between fun now and in the future.

Being debt free has allowed me to amass a nice nest egg and I’m not yet 40. I’ve been able to contribute to 401K’s, IRA’s, and now a SEP. I’ve also saved some money in non-retirement accounts and CD’s. In less than five years from now I will have reached my retirement goal, thanks to starting early, aggressive saving, and the power of compound interest. I might scale back my savings some then, but I’ll still keep adding to it because I don’t want to be caught short.

How is this possible? How can I be so relatively young and so close to my retirement goal? No debt. When others were throwing money at car payments, I was driving a beater and banking the money. When my friends moved out of their starter homes and traded up to McMansions, I stayed put in my adequate house and banked the money. When we got raises, we banked most of them and continued to live on less than we earned. When my friends went on four resort vacations a year, I went camping or visited family. When others were putting in stainless steel appliances and granite countertops, I stuck with the basic laminate counters and white appliances and banked the money. I’ve upgraded my lifestyle over the years, but very slowly. I don’t want to be retired and living in a crummy nursing home with only memories of fabulous granite countertops to make me feel better. I’d rather have that money for my care.

It’s not too late to do something about your retirement situation. Pay off all your debt and you’ll be amazed at how much cash you can suddenly throw at your future while still having some fun today. All those monthly payments can become contributions to your 401K or IRA. Debt holds your money hostage. Sure, you might be having fun now, but is it going to be fun in thirty years when you’re living in an assisted living facility and at the mercy of Medicaid? No one else can pay for your retirement and if you want to be comfortable and happy, you’re going to have to come up with a lot of money. Being debt free is the best way to get there.

8 thoughts on “A Life Without Debt: Building the Retirement Nest Egg

  1. It is so great that you are so young and have such a good life plan. My favorite line is: “..So they continue to finance large and small purchases, living only for today and heedless of the distant future.” That does seem to be at the root of the problem.


  2. Good article! It’s what I’ve been harping on all along myself. Anyway, congrats for reaching your goal so early!

  3. Also, one should consider paying off the home mortgage eary. It will give you a great peace of mind. The tax benefit of having a mortgage is a gimmick for working folks9unless you are in high tax bracket). especially when your rate is above 5% and you can not earn that much in any safe investment.

    My two cents…

    Good article.

  4. Yes being debt free is the best way forward for a good retirement. A lot of us make the mistakes of gaining unnecessary wants instead of planning towards having a good time during the retirement years. Thanks for sharing your article.

  5. Wonderful advice.

    Every year, social security will send you a statement of earnings showing how much money you have made to date in your lifetime.

    I noticed when I was 45, I had more money invested in my IRA, 401K, and my brokerage account, than I had made working for a paycheck.

    I retired in 2005, at age 57, debt free and financially comfortable.

  6. I understand saving for retirement… I have a Roth IRA and a 401(k), at 21. But right now, considering all of what I want to do when I’m young… I can’t save all that much. Total, I’ve got roughly $1.5k stashed away in both, but I have no clue whether it’s a good thing or not. (Too little? Or good enough because I’m a bit ahead of the curve?)

    I appreciate saving for the future, but I want to have some semblance of a life now… Yeah, I could retire a millionaire, but I don’t want to do it making myself miserable. I’m hoping that graduating from college and getting a better job help me out. Right now, I don’t make enough money to do all of what I want to do, and retirement’s the one thing that I don’t want to put off saving for, but it’s on the chopping block for sure.

  7. We will Social Security into the far future. But, it will probably provide a smaller portion of your living expenses than now. There are many ways to fix it. One example – right now we have a low income cap for which Soc. Sec. is taken. Why cant those hedge fund managers making billions, pay soc. sec. tax on all of it? His kid will attend Harvard and mine ends up in ´stan in the Army. How is soc. sec. tax on only the first hundred thousand or so, fair?

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