Dear DTA,
Better late than never? I hope so. I’m 65. My 401(k) has about $100,000 in it. I’m also set up for Social Security. But I’m not sure how much longer I can keep working. Maybe another year. What can I do to improve my situation? I don’t want to run out of money. Thank you.
-Tom C.
Hi, Tom.
Thanks for writing in. It’s great to hear from you.
It’s always better late than never.
I’m going to be honest with you.
You have limited options because of how late in the game it is.
However, you’re not out of options.
There are a number of changes you can think about making in order to put yourself in a better long-term financial position.
First, I want to note that it’s not a binary choice between full-time work and retirement.
Landing an enjoyable part-time job after you retire from your full-time career could be a fantastic way to bridge the gap between your current income and your total monthly outlay.
Even just an extra $500/month is huge.
Speaking of this, I will quickly say that the idea of a full-on “retirement” is this mythical concept that doesn’t hold a lot of weight in reality.
And this is coming from a guy who retired in his early 30s and started living off of passive income, as I lay out in my Early Retirement Blueprint.
Indeed, I live off of the five-figure passive dividend income my FIRE Fund generates for me.
By following the investment strategy of dividend growth investing, a strategy that is skillfully described by fellow contributor Dave Van Knapp through his Dividend Growth Investing Lessons, I was able to build enough wealth and passive income to retire decades before most people.
I don’t have a job.
Haven’t had one in years.
But I still have a number of enjoyable pursuits. Hobbies and the like. And some pay, like writing.
I think a healthy retirement is an active retirement.
You need to have passions and productivity in your life.
All the better if you make some money while pursuing said passions and productivity.
And if that pursuit takes place at a more typical job-like setting, so be it.
Let’s say you can put together another $500/month.
The average Social Security payout is just under $1,500/month in 2019.
Plus, you should be able to generate another $333/month from your 401(k).
That’s assuming you withdraw 4%/year, adjusted for inflation.
This 4% mark is generally accepted as a “safe” withdrawal rate, assuming historical asset returns.
So we’re quite possibly looking at ~$2,333 month in your situation.
Sure, it’s not a lavish amount of money.
But it’s probably enough to live a very acceptable lifestyle in many parts of the United States, especially away from the coasts.
Assuming you can stay healthy, aided by that active retirement I just recommended, Medicaid and limited healthcare needs puts you in a position to spend most of that money on housing, food, transportation, and the rest.
In regard to housing, I’m not sure where you’re at with that.
It wasn’t mentioned, but having a paid-off house in an expensive part of the country could unlock a lot of wealth for you. You could turn around and use this in a cheaper location, by selling and moving.
I hear from so many people who are struggling with money.
Then I ask them where they live.
And I hear answers like “San Francisco”.
The simple solution to something like that is to move. The US is a humongous country. Most of it is actually very affordable.
Taking that idea to the extreme, you may even want to at least consider the idea of relocating abroad.
I currently live in Thailand.
Let me tell you, my cost of living here on an apples-to-apples lifestyle runs me about 1/3 of what it would cost in a comparable part of the United States.
My local purchasing power has been tripled.
That means you could triple the purchasing power of your own income, in local terms.
Just imagine going abroad with your ~$1,833/month and seeing that you can effectively live a lifestyle that would run closer to $5,500 in the USA.
That’s the power of geographic arbitrage, which I detailed in a special report.
You might even find that you go from struggling to make ends meet to having more than enough money.
Investing and actually growing your nest egg again is a real possibility in this scenario.
And if you find yourself in such a position, the Undervalued Dividend Growth Stock of the Week series could prove to be of great value to you.
This is a weekly series that highlights high-quality dividend growth stocks that appear undervalued at the time of publication.
I think you have a number of options in front of you, Tom.
Part-time work, moving, relocating abroad.
You could even decide to continue working full time until 70, boosting your monthly SS benefit to its maximum.
Your benefit gets an 8% annual increase for every year past full retirement age you wait to collect, up to 70 years old. That could put you on track to collect 132% of your full monthly benefit, assuming a normal full retirement age of 66.
Meanwhile, you’d have the opportunity to continue socking away money for your retirement, which could be helped by the aforementioned UDGSOW series.
No matter what path you decide to take, Tom, I’ll make one final suggestion.
Start today.
I wish you luck and success.
Jason Fieber
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