The New Age of Money

Avoid going from riches to rags in your golden years by developing a money plan for every decade of your life


Published by: Phoenix Magazine, August 2008

First, the bad news for the Valley’s growing population of millionaires, many of which are hovering around retirement age.

“The typical boomer who’s retiring today with a million dollars, and nothing else in the way of income, is probably going to be living in poverty in 15 years,” says Mike Sullivan, director of education at Take Charge America, the Phoenix-based credit counseling and debt management company.

“If you’ve managed to accumulate a million dollars, and you invest that at a 4% guaranteed return – which is about all you’re able to get now – that’s $40,000 a year,” Sullivan illustrates. “But with inflation, which suddenly seems to be screaming again, there’s an excellent chance that within ten years, that’s gonna be the equivalent of $20,000 a year. And over 20 years – and most of us can expect to live that long after retirement age today – it’s gonna be the equivalent of $10,000 a year. Pretty grim!”

Now the even worse news for the rest of us. “Most of us won’t have anything close to a million dollars to retire on.” According to Money magazine, only about 40% of today’s boomers have managed to save at least $100,000.

To avoid going from riches to rags over the course of our golden years, investment strategists typically recommend developing a money plan early, and laying out what we should be doing with our money at age 30, 40, 50 and so on:

• The 30’s are a good age to start investing in your company’s 401(k) plan, for example, or an IRA – anything to get some automatic savings started. “For most people, if they set up an automatic savings plan, whether by payroll deduction at work or an automatic withdrawal from their checking account, they will be the most successful savers,” says David Carroll of Phoenix Wealth Advisors, LLC. “If you want to save whatever is left over at the end of the month, generally we find a way to spend it and there is consistently nothing left.”

• By your 40’s, you should be actively saving and looking at investments. This is the age when your “time horizon” and “risk tolerance” are at their most balanced, according to Tim Carpenter, financial advisor at Smith Barney/Citigroup – which is a fancy way of saying you have enough years to reap the benefits of investing in stocks or real estate while still being young enough to recover if your gamble tanks. As for what to invest in, most advisors say there are no sure bets right now – and Carroll likens recommending hot stocks without assessing a person’s particular circumstances to a doctor pushing a popular prescription drug without first examining the patient. “It would be malpractice, in my opinion.” If you can’t afford a portfolio analysis at Smith Barney, start watching a lot of CNN Money.

• The 50’s are generally the time we start panicking over how little we’ve saved and turning to various “get-rich-quick” schemes to make up for lost time. Resist the urge. “What I see with too many people at this age is desperation,” says Sullivan. “All of a sudden they’re 56 years old and they’ve got $10,000, and they’re looking to turn that into $200,000 in ten years.” Sullivan says to watch out for “affinity scams” – too-good-to-be-true sounding schemes tied to a trustworthy name – and home refinancing offers, a “huge scam that we’re running across now. People, in effect, giving away the equity of their homes to someone they think is going to help them.” Better at this age to resign to the fact you’re never going to be Donald Trump and make friends with your meager net worth. “A lot of us suffer from a lifestyle expectation,” Sullivan says. “And it makes it very difficult when all your friends are driving a BMW or Lexus for you to ride the bus, or be renting. Get over it! “

• By your 60’s, you should be getting even more realistic – especially about pending health costs. Fidelity Insurance estimates that the average retiring couple will need $215,000 to cover their health-care costs for the rest of their lives. Adopting healthy habits helps. Studies show that people over 50 can cut health care costs by $2,000 a year simply by taking a 30-minute walk three times a week. So does putting off retirement. “There’s a reason older people line up for those jobs as Wal-Mart greeters,” says Sullivan. Every extra year you work, advises AARP, is a year that you make money instead of digging into savings. Plus, many employers offer “catch-up provisions” for older employees that allow them to put away an extra $5,000 a year in tax-deferred accounts past age 50.

But the best advice, say the experts, is to start living like you’re retiring as early as your 20’s. – a tough challenge for most. “There does have to be a balance for most people between the sacrifice that saving money imposes on their current lifestyle and future goals,” says Carroll. “This is particularly hard for the 20 to 30 group. That is the best time to save money for their financial independence, but it is the hardest time because the goal is so far away.”

Sullivan says the best way to retire wealthy is just to stick with the Ramen noodles lifestyle you develop as a starving college student, no matter how much your income grows.

“If you’re just getting by, and you can convince yourself never to increase your standard of living – even though you know that you’re going to get raises and bonuses and you’re going to do better – that is the best way to accumulate wealth,” he says. “If you can tell yourself, ‘This is the way we’re going to live. If I get a raise, I am not going to buy a bigger house, I am not going to buy a better car, and every extra cent I get I’m going to save,’ I’ve seen people accumulate a lot of wealth over 10 or 15 years without really suffering.

“Of course, it’s very difficult for a lot of people to do that,” Sullivan admits. “Standard of living is an addiction. Maybe the most costly one of all.”


Photos by Phoenix Magazine, Take Charge America

Headquarters of Take Charge America, the Phoenix-based credit counseling and debt management company