By the time she hit her late 40s, Toni Eugenia wasn’t sure she would ever be able to retire.
Eugenia, 56, a pharmacy technician who lived in Houston, was nearly $200,000 in debt and earned a little over $50,000 a year. She had barely contributed to her 401(k) in more than 15 years of working full time.
“I didn’t even know there was a word called budget,” she says. “I was living paycheck to paycheck. Whatever I wanted, I put it on a credit card.”
A few months shy of her 50th birthday, she decided to make a change. She enrolled in a 12-step personal finance course taught by Dave Ramsey, who preaches the value of a debt-free lifestyle.
“I took that course and my whole life changed,” she says. Within three years, she and her fiance managed to pay down all of her debt — including a $150,000 mortgage, a $19,000 timeshare and more than $30,000 worth of credit card debt. In 2013, they decided to move to Seattle, where they married. Eugenia’s wife, 11 years her junior, continued working, but Eugenia, they decided, could finally afford to retire — a decade sooner than most working Americans today.
Eugenia is among more than 500 retirees who shared the keys to their success in a new eBook "The Retiree Next Door" to be released on Thursday by MoneyTips.com. The personal finance education site asked retirees who considered themselves to be living comfortably to discuss everything from their net worth and income to their shopping habits and savings strategies.
“About six months ago we did a survey and found that one-third of baby boomers had no retirement plan,” says Marc Diana, CEO of MoneyTips.com. “We wanted to go to the other end of the spectrum and [talk to] retirees who were successfully retired to see if they could help connect the dots.”
You don’t need millions to retire happy
The idea that you need millions saved up to retire comfortably doesn’t exactly ring true, at least in this survey. More than 70% of retirees surveyed say their net worth is less than $1 million. Two-thirds live on less than $100,000 in annual income, and 80% cite Social Security benefits as their main source of income.
This could be comforting news to many workers who are feeling behind on their retirement savings. A recent report by the Employee Benefit Retirement Institute found that only 11% of workers have managed to save more than $250,000 for retirement outside of their defined contribution plan.
The key, as many retirement experts note, is mastering cash flow — the amount of money retirees have coming in vs. how much they’re spending on a daily basis.
During the three years it took Eugenia and her wife to eliminate their debt, they drastically reduced their expenses. Eugenia sold her car and motorcycle and took the bus to work. Both of them took on second jobs and worked seven days a week. They took inventory of their belongings and decided they could do without most of them. If it wasn’t bolted down to the floor, they sold it on eBay or at one of their bi-weekly garage sales. Eugenia even started shopping yard sales on her own and flipped some of her purchases for profit on eBay.
“People thought I was absolutely nuts,” she says.
When they decided to move, they didn’t pin their hopes on living in a McMansion or cruising the Mediterranean every summer. They moved into an over-55 community in a quiet town outside of Seattle and invested $100,000 (cash) into a modest home within walking distance of her wife’s job (no car necessary). It costs them roughly $1,000 a month to sustain their lifestyle.
More than 40% of the retirees surveyed said they spend less than their monthly income, and more than one-third reduced their living expenses when they retired.
Eugenia may have gotten a late start saving for retirement, but she is far from alone. More than half of the participants surveyed said they didn’t start saving for retirement until they were in their 40s. Making up for lost time was the first step Eugenia took once she became debt free. She hired an investment advisor who now manages her $250,000 retirement portfolio, a large component of which is in low-cost index funds.
“We have enough cash saved up now that we can probably live for eight to nine years even if my wife lost her job tomorrow,” she says. “We live a very simple life and we like that.”
Living the good life on Social Security alone
Like the majority of retirees surveyed in this report, Social Security is often the main source of income for people after they leave regular paychecks behind. The challenge is planning a lifestyle that you can afford with monthly benefits that average $1,294.
Mike McDonald, 67, retired in 2013 after his wife passed away. The couple, who raised six children, were living in Florida at the time and planned on selling their home and living out their golden years by boat. After his wife's passing, McDonald purchased a sailboat and decided to carry out their plans on his own. He's spent the last year sailing around the coast of Florida, docking his boat at marinas along the way.
“I just wanted to get away,” says McDonald, who worked more than 40 years in both the trucking industry and as a condominimum association manager. “I sold everything and set up an account where I could withdraw money from my CDs each year and I use that along with my Social Security income.”
He and his wife had invested in half a dozen rental properties throughout the Southeast (10% of retirees own rental properties, according to MoneyTips' survey). When McDonald retired, he quickly sold them, along with their home and most of their belongings. The proceeds helped fund his nest egg, which, after raising six children well into his 50s, wasn't quite as large as it might have been otherwise.
In addition to his Social Security income, he has about $250,000 in savings, the fruits of investments he made himself (with help from his wife and a family friend), including proceeds from the sale of his rental properties. According to MoneyTips' survey, 41% of successful retirees say they manage their own finances.
"My philosophy is to have a lot of small money coming in from a lot of different directions," he says.
But so far, McDonald hasn't had to touch his savings. He's been able to sustain his lifestyle on his Social Security benefits alone, roughly $2,170 a month. He does this by keeping his expenses as low as possible. Most marinas charge $500 to $600 a month for him to dock his 47-foot sailboat, and the fee includes amenities like cable and WiFi. He has Medicare but has also set aside an emergency fund that he can tap into at anytime.
Without a car (he bikes 25 miles per day) or a mortgage to worry about, his expenses are so low that he rarely has to touch his nest egg. By his calculation, his savings will last him well into his late 80s.
Says McDonald: “I keep hearing about people who can’t live off their Social Security check and I’m doing just fine."
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