'Ignorance is bliss until it isn’t!': I have $50,000 in debt and no retirement savings at 40. How can I secure my future now?

Hi Money Minder,

How can I assist you with managing your finances today?

Where to Start

Not knowing stuff is fine until it catches up with you! So, I’m in my early 40s, no retirement plan to speak of. We run a cleaning business, meaning we’re self-employed, and we’re buried under $50,000 in debt from our car loan and credit cards. Feels like there’s no light at the end of the tunnel. We’re just barely getting by, not living large or anything, but also not saving a dime.

So, Money Minder, what’s the best way to start planning for retirement now? How much should we kick off with?

— Feeling Overwhelmed

Response from THE MONEY MINDER:

Hello There

I understand the challenges you’ve been facing, and it’s commendable that despite your circumstances, you are seeking ways to build a more secure financial future. The first step towards financial stability and eventual retirement savings is addressing your current debt situation. Prioritizing debt repayment is crucial, as high-interest debts, such as credit card balances and auto loans, can significantly strain your finances and hinder your ability to save for retirement.

Consider consolidating your debts if possible, or reach out to a financial advisor to discuss potential repayment plans that can reduce your monthly obligations, freeing up some cash flow for savings. Ensuring you have a clear and structured plan can mitigate the stress and make your financial goals more achievable.

Next, it’s wise to begin saving for retirement, even if you can only start with modest amounts. Given that you are self-employed, traditional options like a 401(k) may not be available, but there are alternatives well-suited for individuals in your situation. A Simplified Employee Pension (SEP) IRA or a Solo 401(k) could be excellent starting points. These plans are designed for self-employed individuals and small business owners, offering higher contribution limits than traditional IRAs, which can help you catch up on retirement savings more quickly.

Aim to set aside at least 10-15% of your income toward retirement savings, scaling up as your debt diminishes and your business grows. Start with what you can comfortably afford, even if it’s a small percentage, and gradually increase your contributions over time. Automating these savings can ensure consistency and help build your retirement fund steadily.

Lastly, it’s beneficial to maintain a budget that allows you to track and control your spending. Identifying areas where you can cut costs, even slightly, can make a significant difference over time. This disciplined approach will not only help you manage your debt but also facilitate better saving habits.

Remember, it’s never too late to start planning for your future. Small, consistent steps can lead to substantial progress over time. Keep focusing on your goals, and remember, you’re already on the right path by seeking advice and taking action.

Wishing you the best in your financial journey,

THE MONEY MINDER