Making FIRE Possible When You Haven’t Saved Enough For Retirement

Thanks to the feedback we received on your FIRE questions, we have tackled how to make FIRE possible when you and your spouse disagree or when you don’t want to pinch pennies. Now, we’re tackling another question, this time about retirement in general, not just early retirement:

How do you make FI possible when you’re later in life and still haven’t saved enough for retirement?

Specifically, the questioner shared that they:

• Are a 60-year old married couple
• Keep expenses low and are close to prepaying their mortgage
• Have one stable job with benefits, and one established freelance career (though a major project representing 80% of income has ended)
• Have a paid-off weekend home in a remote location
• Reached half of their magic number

What should this 60-year old, not yet retired couple do? I am not a financial advisor, and everyone’s situation is different. While we have some details here, there are more that are needed for a comprehensive financial plan (for example, insurance such as medical insurance, long-term care, and adequate property coverage come to mind). However, here are five things that I would do for myself:

1 – Focus on the income side

This couple is already keeping expenses low and can hopefully continue that disciplined spending into the future. In the meantime, there is a ceiling on how much expense reduction can help towards retirement, while income generation has no such limit.

The big benefit to expense reduction is saving more so you can invest more. However, when you’re later in life, you have less time for compounding to work its magic, so you need to boost your income some other way than relying on investments to compound.

Continue to keep the expenses low, but put the effort on the income side over doing any more with expenses.

2 – Reconsider prepaying the mortgage

Prepaying the mortgage is an expense-focused strategy. It reduces your monthly outlay, which reduces your monthly income requirement. Mass media has extolled the virtue of paying off your mortgage before you retire, so there’s almost peer pressure in the prepayment direction. Finally, there are psychic benefits to paying off the mortgage – you simplify your finances, you achieve a 100% equity position, you don’t have to worry about making that payment.

However, once you pay off your mortgage, you don’t have that money anymore. You may have 100% equity, but to access it, you’ll need to sell your house or open another loan or line of credit. When you retire, you don’t have income so securing a new loan or line of credit will be harder, and there are costs to getting a loan.

Once you are a few years away from prepaying your mortgage, your payment is mostly principal, not interest. You can use a mortgage prepayment calculator to see how much you would save in interest. Just keep in mind that the more your payment goes to principal, the less you’re saving in interest – you’re just giving your money back to the bank faster.

Consider taking the money earmarked to prepay the mortgage and save it for yourself instead. There are online savings accounts paying over 2% now. Mortgage interest is low and tax-deductible, so it’s probably not that much more than the savings interest rate.

3 – Shore up the freelance income

Ok, so a project went away and with that 80% of income.

That’s a good reminder to any freelancer that any one client or project shouldn’t take up so much income. As a freelancer, you also want to keep leads in your pipeline all the time. However, if you didn’t do it then, start that now. If you have an established freelance practice, it’s worth investing the time to build that income back up. Changing careers always takes more time than finding new work in what you already do.

This particular questioner shared her resume, which shows extensive experience and skills in the media industry. This industry has been hit hard — I know firsthand because I recruited for a global media company for five years and still work closely with the media industry in my consulting business.

However, in today’s digital/ social media-driven economy, every company needs to tell a story and focus on branding. This means more and more companies, not just media companies, need to have media and content people within their organization. Therefore, media professionals may rightly feel stymied about media industry prospects, but not about job or business prospects overall.

I could make this same argument about financial services, education, and other industries facing disruption, not just media. Multiple industries are hit hard and restructuring in ways that seem to close out opportunity. However, new opportunities get created – sometimes it’s with different companies or different industries altogether.

4 – Look at additional income sources

Rebuilding the freelance practice is worth doing because changing careers may take too long. However, you can always experiment with additional income sources at the same time. When I was building my career coaching business, I took on some recruiting projects. As we were building our real estate portfolio, we kept up with our day jobs.

It doesn’t have to be fancy – tutoring, pet sitting, organizing. These are needs that exist in your own neighborhood and don’t require you to amass inventory, rent an office or take on other start-up costs. Brainstorm at least five other ways to make money than what you are doing right now. This round-up post from Natalie Bacon on side hustle opportunities can help you get started.

5 – Look at bursts of income

In addition to building up ongoing income, look for bursts of income that can help you leapfrog to your retirement number. What about selling that smaller weekend home? What about renting it? Demand for tiny homes is getting bigger, and maybe people want to try before they buy by renting yours. What about moving from the current primary home to the smaller home? What about decluttering both homes and having a yard sale? What about selling both homes and moving to a low-cost destination abroad?

Even if you decide to keep your living situation exactly as it is, brainstorming in this way can help encourage other ideas.

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Even if you decide to not take any of these suggestions, looking into them can also help clarify what your options and priorities are. For anyone who is still looking to secure their retirement, getting clear on your options – what can you do – and your priorities – what are you willing to do – is critical to crafting your ideal retirement plan.

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Check out more of our Making FIRE Possible series:

• Making FIRE Possible When You And Your Spouse Disagree
• Making FIRE Possible When You Don’t Want To Pinch Pennies
• Making FIRE Possible When You Haven’t Saved Enough For Retirement (current post)
• Making FIRE Possible With The High Cost Of Elder Care

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