Good Gen X retirement tips from an ordinary guy

Here's an effective retirement strategy I received recently from a reader (let's call him Joe) who wrote in response to the story about America's retirement crisis. He also had a strong statement about the consequences of not taking the necessary steps to plan for retirement.

"I'm 41 years old, and I work full time. So far I have $540,000 in a 401k, and I plan to work full time to age 60. My mortgage will be paid off at age 54, and I'm not moving. From age 60 to 70, I will work part time to cover my living expenses. I won't touch my nest egg or claim Social Security until age 70.

I have a high school diploma and a blue-collar job.

Planning for the future isn't rocket science, but sadly, many Americans don't take the steps necessary to prepare for retirement. They will just have to work full time at a job they don't like until death."

I like this plan! Specifically, it's a good idea to save sufficient amounts until age 60, then work part-time from age 60 to 70 to cover your living expenses while your financial resources grow. Several analysts suggest you can increase your eventual retirement income by 20 percent to 35 percent or more with such a strategy, compared to retiring full-time at age 65.

This strategy also enables you to have more free time at age 60 and feel as if you're retired. Furthermore, for people who take care of their health, there's a very good chance they'll make it to age 85 or 90, maybe even longer. This plan would give them 15 to 20 years of full retirement, and even more for people who live into their 90s.

Joe added more good tips:

"Don't retire unless your mortgage is paid off and your credit cards are too." (Note: Studies show that people with little or no debt at retirement fare far better than retirees with substantial debt.)

"Never spend more than six months income on a car and try to buy only quality used cars with cash.

"Keep your credit card balance to 5 percent or less of the limit.

"Anyone who isn't saving 15 percent of their income should start at 1 percent and increase it by 1 percent every four months until they are at 15 percent." (Note: While this is good general guidance on how much to save for retirement, do your own homework to see how much you should save, given when you start saving and when you want to retire. And remember that you can count your employer matching contributions to get to your total desired contribution. Many 401(k) plans now have auto-escalation features that will help you automatically implement such a strategy -- check your plan to see what it includes.)

"Never buy a house worth more than 3x the highest salary of just one person in the household." (Note: This is a good guideline, but it might be tough to attain in some high-priced metropolitan areas.)

"Get term life insurance. At least 5 times your annual income." (Note: This is also good guidance because term life is substantially cheaper than whole life insurance. And remember that most middle-income people need significant insurance only while they have dependent children. Once your children are on their own, consider stopping your term insurance premiums and add these amounts to your retirement savings.)

By now you might be thinking that Joe can only afford to be so disciplined about finances because he doesn't have children. Think again: He's married with two kids.

Joe also shared that he's 90 percent invested in the stock market, 10 percent in bonds. This aggressive investment strategy should serve him well. Given that he'll start drawing on his retirement savings in 29 years, he'll have plenty of time to ride out future downturns. His asset allocation is probably one reason why he's accumulated over $500,000, in addition to his high savings rate.

Joe's strategy will be easiest to implement if you have access to a savings plan at work, like a 401(k) plan. This makes it easy to save. You don't have to shop for investments, and you can put your savings on autopilot by having it automatically deducted from each paycheck.

If you're not so lucky to have such a plan, as is the case for half of American workers, you could use a deductible or Roth IRA. This makes it more difficult to save because you have to shop around for a financial institution, and you must write a check each time you save money.

It's not too late for Gen X to get their retirement on track, and Joe's plan is a good place to start. It might not work for everybody, but I hope you'll find some ideas here that help you think about what you can do to prepare for the rest of your life.

While the title of this article calls Joe an "ordinary guy," it means he's not a professional financial planner. Frankly, Joe is on track for an extraordinary life and retirement! Here are some additional motivating thoughts and parting advice from him:

"I grew up very poor, and I refuse to live like that as an adult. I work very hard at a job I love. I have a budget, and I'm committed to having a secure future. Live below your means, but take time to enjoy life.

Couldn't have said it better myself!

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    Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. Now he's a research scholar for the Stanford Center on Longevity, where he helps collect, direct and disseminate research that will improve the financial security of seniors. He's also president of Rest-of-Life Communications, delivers retirement planning workshops and authored Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck and Recession-Proof Your Retirement Years.