This Boston man wants to retire at 72 — but he's $184,000 in debt and still owes child support. Dave Ramsey told him bluntly that he was at least half a million behind

“You're 65 and Broke”: This Boston man wants to retire at 72 — but he's $184,000 in debt and still owes child support. Dave Ramsey told him bluntly that he was at least half a million behind

According to Fidelity Investments, by age 67, most Americans would need to have at least 10 times their annual income saved to retire. Unfortunately, many older adults are far from this.

Boston-based Rick is part of this latecomer group. He wants to retire at 72, but his debts and maintenance payments prevent him from accumulating enough capital.

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“You’re 65 years old and broke,” Dave Ramsey told him on a recent episode of his show. For this reason, the financial personality argues that Rick needs another $500,000 or $600,000 to close the gap.

Actually broken

Rick has a $136,000 mortgage, a $30,000 car loan on his truck, and another $18,000 in debt from a recent solar installation. That equates to a total debt burden of $184,000. He also owes his ex-partner alimony, which he says costs about $10,000 a year.

Unfortunately, his debts exceed his investable assets. Rick says he makes $100,000 a year, has $110,000 in his 401(k) and another $5,000 in emergency savings. Based on these numbers, Ramsey assumes he is effectively broke.

To be fair, Rick's house is probably worth something, so “poor” would be a more appropriate description. In addition, some of his expenses will soon be reduced. His child support payments will stop at the end of next year, while some federal tax refunds are expected to bring his solar loan down to $9,000 in 2024. This gives him more scope for investments.

Even so, he's still far short of his goal of retiring at 72. Ramsey believes he needs a more aggressive strategy to catch up.

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Aggressive strategy

Based on his current strategy, Rick is at risk of not having enough savings for retirement.

“I would become more radical if I were you,” Ramsey tells him.

“I would get both of these debts paid off immediately and would temporarily stop adding to your 401(k). I want the truck and solar system to pay for themselves within 12 months. Beans and rice, rice and beans, you have no life until you do that. This is task one, it's an emergency.

“Or sell the stupid truck, one of the two.”

Ramsey also wants Rick to have his house paid off in full in three years instead of seven.

Downsizing his truck and paying off debt should allow Rick to put more of his income toward savings and investments. Assuming he saves 15% of his gross income ($15,000) per year and invests it in a low-cost index fund that delivers 10% compound annual growth (the average annual return of the S&P 500), he could earn $356,666 within seven years. accumulate dollars.

We go one step further

Unfortunately, even Ramsey's aggressive strategy isn't enough to prepare Rick for retirement. The $356,666 he will end up with is just three and a half times his annual income and is well below Fidelity's recommended 10x target.

Rick might also consider downsizing his home. Moving to a smaller, cheaper home would reduce his mortgage costs – and potentially free up some money for investments. Given the recent rise in home values, downsizers are in a “lucky position,” Skylar Olsen, chief economist at real estate company Zillow, told Business Insider.

Working longer hours is another option worth considering for anyone in a position like Rick's. A whopping 8.2% of Americans over age 75 were employed in 2022, according to U.S. Department of Labor data. The ministry expects this rate to increase to 9.9% by 2032. Put simply, Rick is not alone in his concerns, but for the millions of older Americans who, like him, are suffering from rising costs and a lack of savings, it is not too late to start.

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