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A retirement crisis

A recent report — published by the U.S. Senate’s Health, Education, Labor, and Pensions committee — uncovered a growing retirement crisis across the nation. Roughly half of all Americans over the age of 55 had no retirement savings. Meanwhile, 1-in-4 Americans over the age of 65 were struggling to survive on less than $15,000 a year.

Leading causes for this crisis, according to the report, include the inadequacy of the Social Security safety net, the decline in defined benefit pension plans and the lack of access to any retirement plans for many Americans.

However, the rising cost of living is also a factor. Mary says she owned property just north of Palm Beach, Florida that she recently sold for $518,000. After paying off her debts with some of the proceeds from this sale, she’s left with $290,000.

Mary certainly benefited from rising home prices in recent years. Since 2020, the national average home price in the U.S. has jumped 29%. However, she now faces an expensive housing market that’s made it difficult for her to downsize.

Mary’s target is a home worth $300,000. She’s willing to put $200,000 down and apply for a $100,000 mortgage that she believes she can pay off in 10 years. However, that leaves little left to retire on, which is why Ramsey wasn’t keen on the idea. He had a different plan.

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Avoid the mortgage

“You do not want to go into retirement with a mortgage,” Ramsey tells Mary. “That’s still $100,000 that’s not going to your nest egg.”

Aiming for a cheaper home could be the solution. Ramsey says he would buy a $200,000 house in cash, which means compromising with a less-than-ideal living situation. “[That] ain’t much of a house… it’s not a shack but it’s a pretty far step down from where you were living,” he says. “I understand that.”

However, without monthly mortgage payments Mary can accumulate more cash to invest in her retirement accounts such as a Roth IRA. Since she’s self-employed as a small business bookkeeper, Mary also has access to retirement accounts tailored for business owners, such as the SEP IRA. She could also consider taking on more clients for her accounting business and delaying retirement by a few years to boost her income beyond her current annual rate of $70,000.

Ramsey believes these simple steps could have her “nest egg roaring” in a few years. In fact, she could aim for $1 million within 14 years, based on his aggressive estimates. Other older adults could similarly salvage their retirements by pulling back on expenses and boosting income or simply delaying retirement by a few years.

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Vishesh Raisinghani Freelance Writer

Vishesh Raisinghani is a freelance contributor at MoneyWise. He has been writing about financial markets and economics since 2014 - having covered family offices, private equity, real estate, cryptocurrencies, and tech stocks over that period. His work has appeared in Seeking Alpha, Motley Fool Canada, Motley Fool UK, Mergers & Acquisitions, National Post, Financial Post, and Yahoo Canada.

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