50 and Broke? Early Retirement Planning Can Help

I was having a discussion with someone who asked “If your site is about early retirement, how does that help a broke 50 year-old?” To be utterly honest most of the planning ideas on this site will apply to anyone regardless of age.  Early retirees have some particular issues that are unique, like a reduced CPP pension, but otherwise planning to retire at 65 when you haven’t started planning at 50 is similar to what I’m doing.  You have a really tight time frame to save and not much compounding interest to help you out.

So what are the steps for a broke 50 year-old to retire?  Well they go something like this:

  1. Lower Your Expectations.  Replacing 100% of your current income when in your peak earning years is not realistic anymore.  You just don’t have the time to save for that.  But relax most people retire on just $30,000 to $40,000 anyways so a 50% target actually might be realistic for you.
  2. Live Well Below You Means. Start practicing on living on a lower income starting now.  You are going to need to cut your expenses to boost your savings and ensure you pay off all your debt prior to retirement. So rein in that spending.
  3. Spend on Happiness.  The trick to step 2 is not to feel deprived while doing it, so start looking at what really makes you happy and focus on keeping some of those items in your budget.  Then hack out the rest of your wasteful spending (everyone has some so don’t feel bad).  Just remind yourself when you go to buy something: do I really want this or do I want to retire? Retirement usually wins.
  4. Cash First, Invest Later.  Don’t panic if you don’t know much about investments at the very start because it doesn’t matter that much.  An extra 2% return on $50,000 is only $1000 in a year.  Compared to losing more than 2% or more in a day from a bad investment it really isn’t worth the risk of investing in things you don’t understand.  Park the money in a GIC or term deposit for a year and get to work on educating yourself.  Then invest when you have a better understanding on what risks you can handle.
  5. Count Your Blessings (Literally). Retiring at 65 means OAS and CPP payments.  Figure out how much you will get and include that in your plan (especially since  CPP which won’t run out of money until long after you are dead).  You will be surprised to see how much easier that makes things (up to $30,000/year for a couple).  So don’t panic thinking you need a million dollars to retire.  If you pay off all your debts and have a modest nest egg of $200,000 to $400,000 the majority of couples would be fine.

Then one last little suggestion: have some fun in life!  Retirement isn’t only about money, you also have to plan what you want from your retirement.  So start day dreaming on what you would like to do in your retirement and try out a few new hobbies or rediscover some old ones.  Heck, you might even decide you want to keep working part-time past 65 and that’s ok too.

What advice would you give to a broke 50 year-old?  Please leave a comment and share.

3 thoughts on “50 and Broke? Early Retirement Planning Can Help”

  1. Great article! I think there are many in the same position. I call it the financial mortality effect! You get to a stage in life where you realize that you won’t/can’t work forever and will need to eventually start putting some money away. As a Financial Planner and Financial Educator I show people what they need to do and have to have some hard discussions with them about what may or may not be possible. All 5 of your suggestions I have used in the past. The one I keep telling all my clients no matter what age is: Live Your Life Everyday! If it means that you will work part time until you are eighty-five but you get to do all that you want to do – what’s wrong with that?
    Too often I have worked with couples or individuals that worked hard to retire early at let say 50 or 55 just to be diagnosed with an illness or suffer a debilitating stroke and they haven’t experienced what they want in life! So I think a reasonable number 6 is continue working through retirement and LIVE LIFE NOW!
    Frank Wiginton
    PS – One thing most people don’t realize is that you likely will be in a lower tax bracket in retirement so you don’t need as much income. This is why it is important to prepare a proper comprehensive financial plan to understand what you will truly need.

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