Personal finance expert Dave Ramsey, known for his no-nonsense advice, recently shared a caller's story on social media highlighting a financial challenge many Americans face as they approach retirement. At age 59, this caller had no retirement savings but had recently sold a $518,000 home. Once she paid off most of her debts, leaving only a car lease, she had $290,000 left and sought Ramsey's advice on balancing investing and buying a new home.
"Instead of taking all of the money and putting it into a home I was thinking that maybe I should beef up an investment account," the caller said. "But I know that your steps say that’s like borrowing money to invest."
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The caller was considering a $300,000 home just north of Palm Beach, Florida, where she currently resides. She would use $200,000 for part of it and take out a mortgage on the rest. Ramsey's response really honed in on the importance of achieving financial security before retirement.
He advised the caller to instead purchase a $200,000 home that she could buy outright instead of taking a mortgage. This would allow her to avoid monthly housing payments and allocate more of the remaining funds toward building a retirement nest egg.
"Retiring with zero money or close to zero money and a nice paid-for house is not a plan," Ramsey said. He advised living in the $200,000 house for 3-5 years while the caller focuses on building her nest egg. Then later, if the market was right and she could afford to buy a nicer home, she could work up to that.
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Ramsey also recommended paying off the car lease early to eliminate all remaining debt. With no debt and reduced monthly expenses, he suggested aggressively saving the leftover $50,000 by investing in a Roth IRA and SEP IRA.
The caller's story resonates with many Americans nearing retirement without sufficient savings. According to a recent AARP survey, 20% of adults over 50 have no retirement savings. Many are also burdened by debt, with nearly one-third carrying a credit card balance of $10,000 or more.
Inflation and rising costs continue to exacerbate these issues. Over 37% of respondents reported difficulty covering basic expenses like food and housing. Additionally, over a quarter of those not yet retired expect never to retire.
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Indira Venkateswaran, AARP's Senior Vice President of Research, noted, "Everyday expenses continue to be the top barrier to saving more for retirement and some older Americans say that they never expect to retire."
For those nearing retirement without significant savings, the path forward may involve tough decisions such as downsizing, eliminating debt and working longer. Ramsey's advice to prioritize financial security highlights the value of taking proactive steps, even late in life.
While challenges remain, guidance from financial advisors can help Americans navigate their retirement years with greater confidence and stability.
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