BiggerPockets Money Podcast - Broke at 50? How to Retire On-Time (Or Early!)

Starting point is 00:00:00 So you're 50, you're broke, and you're thinking to yourself, retirement is never going to happen, right? You're wrong. Today, we are breaking down exactly how to get started, even if you feel like you're starting from zero. We're covering actionable steps to take, mindset shifts, and strategies to build wealth, fast, even if you're starting later in life. Hello, hello, hello, and welcome to the Bigger Pockets Money podcast. My name is Mindy Jensen, and with me, as always, is my not quite 50,

Starting point is 00:00:32 still fi, definitely someone you can learn from, co-host Scott Trench. Mindy as far as your intros go, that one wasn't the most fire. Bigger pockets of the goal of creating one million millionaires. You're in the right place if you want to get your financial house in order because we truly believe financial freedom is attainable for everyone, no matter when or where or how old you're starting. I guess how old is when, whatever. We want to shout out in this episode.

Starting point is 00:00:56 Our sponsor, Connect Invest. With Connect Invest, Real Estate Investing is simplified and within your reach. Now, let's get into the show. Mindy, let's talk about, let's start with the basic question here. For someone starting at 50, who is broke, maybe earning a median or a little bit above median income, hopefully after a couple of decades of work experience, can they still fire? So fire means financially independent, retire early. And I think if you are 50 years old and you don't have significant savings or even any savings,

Starting point is 00:01:27 I think that the RE part, the retire early part, is not really going to be in the cards for you. However, retirement is still going to be in the cards for you. I know you've read these articles, Scott, where it says, oh, 90% of Americans will never, ever, ever be able to retire or whatever. I don't remember what the exact title is. But they're designed to get you to click on them and make you scared. And I think even if you are 50 years old today with a $0 net worth, you can still have a comfortable retirement at age 65, maybe even a couple of years before. But you definitely need to be tempering

Starting point is 00:02:03 your expectations and not comparing yourself to the 30-year-olds that you're hearing from or the 40-year-olds that you're hearing from because your story is not the same. Therefore, you shouldn't compare the two because you will feel bad and you shouldn't. You're at least thinking about money and that is an awesome step in the right direction. So Scott, what would be the first step you would recommend to somebody who wakes up and says, wow, I'm 50 years old and my net worth is nothing. If I'm starting at age 50 with a $0 net worth, I think the first step is to acknowledge probably the feelings that go along with that, right? So there's probably fear. There's probably some regret. There's probably some apprehension about the unknown with finance and the journey that

Starting point is 00:02:49 needs to be undertaken here. The second thing I do is I define what enough looks at. like. And I want to throw out a number there for someone who's at 50 with a median income and wants to spend a percentage of that income on there. I'm going to throw out a million dollars, right? And why am I going to throw out a million dollars? Well, a million dollars, according to a large body of traditional retirement advice, should throw off about $40,000 per year in spendable cash flow. You should be able to spend a live a lifestyle of $40,000 a year. that may not be a very luxurious lifestyle, but that should be enough to cover the bases in retirement.

Starting point is 00:03:28 And when we start adding in other components, the discussion that I know Mindy and I are about to have for the next couple of minutes here, we're going to be able to make that go pretty far, I believe. And that's a pretty good base. You're going to feel a lot better about retirement if you can begin approaching or ballparking away to getting to that path, right?

Starting point is 00:03:45 We don't have to get all the way there. We'll talk about other options. But I think that's where I'm going to be starting here. And then I'm going to be thinking about, you know, what do I have today? What is my income? What are my expenses? And what is my asset base? Probably most folks listening to this or in this position are not truly starting from a zero or negative net worth at 50. Although if that's you, we can work with that too. But we're probably starting with something. Where are those assets? And how are they invested right now? How are they going to

Starting point is 00:04:12 perform with those couple of years? And how are we going to take this income stream from your salary or your career minus the expenses you need to live your life and invest that? And now we're beginning to get a picture of what that model can look like over the next 10 to 15 years towards traditional retirement. Scott, you said something very interesting. You said you might have some fear, you might have some regret, you might have some apprehension. If you're listening to this and you have those feelings, that's totally valid. Take a moment and just let those wash over you. This is a scary position to be in according to everybody from the news, but we're not from the news. We have lots of episodes that we have recorded in the past, people like Susan and Norm,

Starting point is 00:04:56 people like Fritz from Retirement Manifesto, and Kathy from Baby Boomer Super Saver. They have showed time and time again that in about 10 years, you can amass a portfolio of approximately $40,000 a year, this $1 million portfolio that Scott was talking about. And these are repeatable examples. They didn't do anything wild and out of the ordinary. What they did may not be what you do, but it's perfectly okay to have these fears because you don't know what's next. Scott and I know what's next. We see that on average it takes about 10 years to amass a portfolio of approximately a million dollars. So like you said, Scott, it's not, $40,000 year isn't this luxurious lifestyle, but it is still a retirement. Take a moment to to have a lot.

Starting point is 00:05:47 have this fear and then let's move on. Scott, you also touched on expenses. If we're planning a $40,000 a year retirement, then we need to make sure that our expenses fall within that $40,000 a year. Tracking your expenses. If you have no idea how much you're spending, you don't know where it's going. That's going to be something. The first thing that I'm going to encourage our people to work on is looking at your expenses. When you take stock of your financial position, how much is going to where you want it to go and how much is going wherever because you're not really paying attention. I think that's one of the biggest places people can cut back is just looking at their intentionality and where their money is actually going and where they want it

Starting point is 00:06:32 to be going. Mindy, let's create a persona here and give them a plan for moving towards retirement. And I think here's my suggested persona, right? This is someone who is 52 years old, is recently divorced, who has been a stay-at-home mom for the last 15 to 20 years with the kids out of the house or on the way out of the house at this point. And they're starting truly with zero and don't have, you know, are questioning what their skill set is going to be valued at in the market. How's that for a tough situation? Do you think that's a good person? Let's help this person retire in 13 years. I've got this. In 13 years. So this person will be 65 at retirement age. Yep. Okay. Scott, we need some income. That's right. So I think that we're going to be applying for

Starting point is 00:07:29 entry or middling level jobs here. So it's time to dust off the resume, populate with the skills, say, hey, we're going to be starting. I'm going to assume this person has a college degree or son education from years ago, but hasn't applied it fully in the workplace for some time. And we're going to be applying for entry-level jobs at this point. And we're going to be assuming that we're going to be able to within a few weeks or a few months, earn a $45,000 to $55,000 a year annual income in that location. Mindy, how close am I? Is that a realistic goal for this person? I think that's a very realistic goal. I want to introduce the idea of a side hustle. In my news feed yesterday,

Starting point is 00:08:10 was a couple of articles about people making a lot of money in side hustles. So I started clicking through them because I was talking on the rookie show about how to save for your first investment property. And one of his articles that came up was somebody making $30,000 a month in a side hustle. So I clicked on the article and it was something about like running your own social media marketing company. I'm like, okay, that doesn't apply for me. That doesn't apply for a lot of people.

Starting point is 00:08:36 But look at the potential. So I Googled today trying to find those articles. Again, side hustles $30,000 a month. And what comes up is TaskRabbit side hustle earns over $70,000 a month. Here's how to start. $30,000 a month, Australia's top earning side hustles. This 52-year-old side hustle makes $30,000 a season. And this 17-year-old makes $30,000 a month with an Amazon side hustle.

Starting point is 00:09:00 So if you want to make money, if you want to make a lot of money... I want to just push back a little bit here. Hold on. I'm not done. You can push back in a second. If you can figure out how to make $7,000 a month going after this, after 20 years out of the workforce, then, you know, game over. Right, we got our plan here.

Starting point is 00:09:15 Yes, then we've got our plan. I don't know if I'm going to, if I've listened to this, I'm like, oh, my problem is now solved on that one. Well, I'm not saying that your problem is solved. If you would have not interrupted me, Scott, I would continue. All right, sorry about that. Keep going. We need to take a quick break. But while we're away, we want to hear from you.

Starting point is 00:09:31 Did you get started on your fire journey later than you wish you had? Answer in the Spotify or you. YouTube app. Tax season is one of the only times all year when most people actually look at their full financial picture, including income, spending, savings, investments, the whole thing. And if you're like most folks, it can be a little eye-opening. That's why I like Monarch. It helps you see exactly where your money is going, and more importantly, where your taxed refund can make the biggest impact. Because the goal isn't just to look backward, it's to actually make progress. Simplify your finances with Monarch. Monarch is the all-in-one personal finance tool designed to make

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Starting point is 00:12:35 on the internet and just Googling it, you will get, like, you will fall into a rabbit hole. But some of these side hustles are not going to be valid at all. Like, I make side hustle money by fixing cars in my garage. Well, I'm not going to do that because I know how to fix cars. There was one task rabbit guy who makes $4,000 a month setting up IKEA furniture. Now, that's probably not the best side hustle for you, Scott Trench. Maybe, like, have you ever put together IKEA furniture? It is the activity I hate the most in all of my life is assembling furniture.

Starting point is 00:13:08 But I can do it. So would you hire that out? Would you hire somebody to come in and set up the furniture for you? There's lots of people who do. There was a guy who is retired who is making $4,000 a month working as much as he feels like, setting up IKEA furniture. There are side hustles that were, there's a lot of side hustles that are never going to be anything you're interested in.

Starting point is 00:13:29 But there's a lot of opportunity out there to make money. either online or in person, just by doing a little bit of research. If you are 52, let's call her Barb, Barb is 52, and she has recently divorced, was a stay-at-home mom. She's got kids in high school or college, and she's starting with zero. Barb has skills that she can put to use as a side hustle and make a lot of money. I'm going to zoom back out and go to a mindset shift here. We're going to humble ourselves and we're going to get an intro level. level job because that's a starting point. We need a W-2 to pay the bills. Then we're going to say,

Starting point is 00:14:08 look, we have a big gap to close here. That entry-level job, if it's called $50,000 a year, if we save all of it over the, 100% of it, we have no expenses and no taxes, we save all that over the next 13 years, we're going to have $650,000, which we might note is not a million there. So this is a starting point, right? We're not going to finish here. We're going to have to invest that, and that's going to get us some of the compounding. We'll go through the that math later on this. But really, we need to figure out how to immediately create a large gap between income and expenses from day one. And I want to quickly focus you on a first goal of getting to $25,000 saved. $25,000 saved is something that you can achieve if you're starting over,

Starting point is 00:14:53 if you're willing to humble yourself, if you're willing to live well below your means, make sacrifices on what you eat, where you live, what you drive. You can stay. I'll have a little bit of money left over for the good things in life, the trips, to see the kids in college or a vacation or two a year. But you're going to have to make those cuts on those areas. And then absolutely, your nights and weekends, to some extent, to the extent Able, are no longer going to be filled with TV. They're going to be filled with a side hustle. That side hustle, I'm going to bring us back down to what I think is more realistic goal, is going to look something more like Uber or TaskRabbit or Delivery that's going to be amount to $15 to $20 an hour.

Starting point is 00:15:30 and then I want you absolutely to be exploring and thinking at all times about how to make more money per hour by layering in more creative sidehouses that are relevant to your skill set, like what Mindy suggested here. But I think if you're willing to move into a very entry-level apartment that is not what you're used to or what you like or what you would hope for, maybe even getting a roommate, which I would highly suggest for at least a year on this, if you're willing to drive a 10-year-old economy car, if you're willing to pack lunch and meal prep every week, you're willing to go to work and you're willing to do a side hustle on the nights and weekends, I believe you can save up $20,000 to $25,000 within the next 12 months,

Starting point is 00:16:10 and it will not be fun, but it will be a start that we can begin building off of. What's your reaction to that part, Mindy? I agree with that. 100%. You should absolutely be looking for a W-2 job first. And I don't mean to suggest that every side hustle is going to pay you $30,000 a month. But there is so many different ideas out there. Why settle for a $1.50 side hustle when you can find a $500 side hustle?

Starting point is 00:16:38 So, you know, I think taking stock of your skills is great. There's a lot of other things you can be doing that can generate additional money because you're not going to be able to save 100% of your $50,000 a year job. You're going to have to spend some of that. So you need other ways that you can generate income so that you can generate income so that you can put that away for retirement. I completely agree with that. I think that with really hard work, it will literally hurt probably for the first several months or forever around there. But I think you can save up a couple hundred to maybe as much as $1,000 a month on top of a pretty healthy

Starting point is 00:17:15 saving rate from that job. But that's, I think, the reality of what I would ground folks in for the expectations for that first year. On top of that, I would suggest picking up a personal finance book every week. Getting a pair of earbuds, doing it on audible, go to the library. You can get free books from the library, both on audio, physical, or digital format. And I would start self-educating. I think the mentality should be I'm going to read 50 books on personal finance and investing over the next year or two. And I'm going to really begin building that skill set because the fundamental problem I believe that this person is going to face after the first year is that job is going to be the primary blocker to financial freedom. A side hustle is great.

Starting point is 00:18:01 Play your hand at side hustles, but really you'd need the income from the main job to be higher in order for that to work. And the best way to do that at this point in your career is to self-educate. Read one book after another, be proactive, make good decisions, job hop, add value to the extent that you can. That's the first year I'm thinking to get to 20, 25, hopefully even beyond that in terms the savings. And I would go so far as in that year, don't even worry about the retirement account. We need this cash to help us explore better options on a go-forward basis in year two. But we'll get to that in a second. What do you think, Cindy? Ooh, I'm curious about this. Don't think about the retirement account. I will say if you have

Starting point is 00:18:44 the ability to have a high deductible savings plan, I'm sorry, a high deductible health insurance plan that comes with the health savings account, I mix those two together. if you have the ability to have those, I would sign up for that. You're putting your money into your HSA. Hopefully you don't have any big expenses. If you do, hopefully you can cash flow them. If you can't, you can at least pull from the HSA and you're paying for it with non-taxed dollars.

Starting point is 00:19:11 But if you can start growing that account, if you can start putting a little bit in your 401K or your Roth IRA, that can be a great way to start building. non-taxed wealth, well, you're paying taxes on the way in. And the over 50 catch-up contributions can be quite significant. So being able to contribute to those, I mean, Barb isn't going to be able to max out her 401k and her Roth IRA and she's just simply not making enough money. But if her side hustle starts coming up, if she's able to make additional money, she gets a better job. She gets more money. She gets a big raise. She gets a big bonus. That could be someplace to put that money. Here's why I disagree, Mindeeb, is because in year two, I want Barb to buy a house hack. Right,

Starting point is 00:20:04 Barb, Barb is stuck right now. Barb is not, Barb hopefully can increase her income, but there's no guarantees on that front. If she can house hack by putting down, by being an owner-occupied loan on a duplex, for example, and Airbnb being the other side, now she's cleaning the other side for herself instead of for a client around there, she may be able to live for free. And if her rent is $1,500, and she's able to reduce that to zero, effectively, with a lot of hard work,

Starting point is 00:20:32 that $18,000 starting then can now go into for retirement accounts. So I'm not saying to not invest in the retirement accounts in general. I'm saying that I'd rather borrow or accumulate cold, hard cash in the savings account and stockpile that in pursuit of a house hack. most likely. I think that Barb really needs that first real estate investment because it will make everything easier and think about the flexibility, just the sigh of relief. Even if nothing else

Starting point is 00:21:04 happens over the next 15 years, we only come in another dollar. We at least are able to get that expense for living close to zero with some hard work, with some part-time effort. I think that's a really good stable foundation. And Barb, the way you can do this is by taking that $25,000 and looking for a $4 to $500,000 house. This is the median purchase price, the United States of America. So it'll be a little low on the low end or not in the nice part of town if you're in a high cost living area. And it'll be in the very nice part of town if you're in a low cost of living area. But finding that duplex, you could put 5% down on that property. And that would be $25,000 in a $500,000 purchase. And you're beginning to get in business in terms of having an

Starting point is 00:21:47 opportunity to defray some of those costs to living or maybe all of it. if you're creative and use things like a short-term rental on this. We've now presented Barb with two different options and she can choose her own adventure. I do really like the idea of getting 50 books a year as a goal. Scott, I'm going to suggest that Barb, start with yours. Set for Life by Scott Trench, Dominate Life, Money, and the American Dream. Originally, like Scott said, he wrote this for a early 20s person, but really he wrote it for somebody who was just starting out on their financial journey.

Starting point is 00:22:22 So, Barb, you are just starting out on your financial journey. This book is for you. If you are 50 plus, I'm going to go this far. If you're 50 plus and you're interested in this concept and you're hearing this on or before January 31st, 2025, email me at set for life at biggerpockets.com, and you get it for free in whatever format you want around there. Oh, that's nice, Scott.

Starting point is 00:22:43 I didn't write it for the 50-plus-year-old person. I wrote it for the 20 to 30-year-old person just getting started in life, wants to be super aggressive, but I think a lot of it applies. And that way, if you don't like it, and you don't think it does apply, well, you got it for free. So we can go from there. Stay tuned after our final break. Tax season is one of the only times all year when most people actually look at their full financial picture, including income, spending, savings, investments, the whole thing. And if you're like

Starting point is 00:23:07 most folks, it can be a little eye-opening. That's why I like Monarch. It helps you see exactly where your money is going, and more importantly, where your tax refund can make the biggest impact. Because the goal isn't just to look backward. It's to actually make progress. Simplify your finances with Monarch. Monarch is the all-in-one personal finance tool designed to make your life easier. It brings your entire financial life, including budgeting, accounts and investments, net worth, and future planning together in one dashboard on your phone or your laptop. Feel aware and in control of your finances this tax season and get 50% off your Monarch subscription with the code pockets. What I personally like is that Monarch keeps you focused on achieving, not just tracking. You can see your budgets, debt payoff, savings goals, and net worth all in one place.

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Starting point is 00:26:37 Begin your next chapter. Book your seat at westjet.com or call your travel agent. WestJet, where your story is. takes off. Let's jump back in. Now let's talk about Sally. Sally's 55. She has $100,000 in income and $0 in net worth. Where is she going to start? I think a lot of these concepts will still apply to a large degree, right? I mean, it's the net worth piece that is, that is, that is, that it's bugging me here. So Sally's got 100 can income and no net worth. So same deal here. I still think we're in the same spot, right? So there's just,

Starting point is 00:27:14 Sally saves 100% of her income. Now we're at 1.3 million. Income is still a primary driver for Sally, but we can begin thinking more about an overall arching investment strategy. I still think that using housing is the ultimate killer app here, and I would encourage Sally to consider a live-in flip.

Starting point is 00:27:33 This is where perhaps we take that $500,000 duplex when we instead add value to it, and then a couple years later sell it. The gain, let's say that we buy a house for $500,000, we put $50,000 to $75,000 into it, and a few years later we sell it for $700,000. The $125,000 capital gain is tax-free. And you do that two or three times,

Starting point is 00:27:54 and that's a major supplement, maybe as much as half a million dollars on the weight of retirement that you can add in and or you can rent out part of the house as a house hack, like what we talked about earlier, to defray those expenses during that time period. So I'm still thinking about using housing in there. I'm still leaning into my reading,

Starting point is 00:28:12 but there's a little less pressure of like this is just not going to work. You can get pretty close. I think that Sally, if she saved 20, you know, 30% of her income did one or two real estate investments and put the rest in her retirement accounts, she can get to about a million or reasonably, you know, within shouting distance by 65 at that point. And when we supplement that with Social Security and Medicare, we're beginning to look a lot more, a lot more reasonable with our approach there. That social security chunk, let's say it's $3,000, you know, $2,000 a month on there.

Starting point is 00:28:48 Well, that reduces the need for that $40,000 to $16,000. It's only a couple hundred thousand dollars in assets to get that 40,000-ish lifestyle done by that plate. Sally will probably want more. She probably will not believe that all of that Social Security will be there for the rest of her life. She should probably only count on 75% of the Social Security benefit she's expecting, for example, at this point in time. but it's a lot more comforting to even think about 50 or 75% of the Social Security benefit you're putting in there to defray that expense. What do you think, Mindy? I think that Sally has a better opportunity to contribute to her 401k, her Roth IRA, maybe even hit on some of the after 50 catch-up contributions.

Starting point is 00:29:35 But again, her income, I feel like such a snob saying this, her income is only 100. thousand dollars with a zero dollar net worth she's probably spending a hundred thousand dollars a year so she's going to need to make some big cuts or she's going to need to plan to work forever and i bet she doesn't want to work forever so she's going to need to look at her expenses look at where her money's going what it's doing for her and where she really wants it to go look at what kind of retirement she wants um the i i want to talk about the i want to talk about the over 50 ketchup contributions because they do apply for anybody who is able to contribute. But, you know, and they're not small potatoes.

Starting point is 00:30:20 The, well, the Roth one is the Roth IRA after 50 tax contribution or after 50 ketchup contribution is a thousand dollars. Thanks, IRS. That's so helpful. But it's still a thousand dollars. I'll take it. And I am over 50, so I will take that. The 401K over 50 catch up contributions, this is a little bit new to me.

Starting point is 00:30:40 There's $7,500 additional every year. So this year it's $23,000. So you can contribute up to $31,500 this year. But starting next year in 2025, this is the thing that I just learned. People ages 60 to 63 can contribute up to $11,250 extra. But only for those three years. So if you're 59, you can't. If you're 64, you can't.

Starting point is 00:31:09 I don't understand why those. three years are so special, but whatever, when you're between 60 and 63, if you have the opportunity to do that, take advantage of it. I think that those retirement catch-up contributions are great, and they apply much more to Sally than they do to Barb in our example here, because Sally has a higher income tax bracket at $100,000. And absolutely, like, if you're in a higher income tax bracket and you have a lower net worth and the kids are finally out of the house or whatever it is that has enabled you to save, definitely take advantage of these retirement contributions and get up there. I do think we've got some bad news for Sally, though, too, which is that she's not

Starting point is 00:31:45 going to get to retirement unless she also humbles herself and probably degrades that lifestyle, because if she's bringing in $100,000 in income and there's no net worth and we're not accumulating, that's the fundamental problem, and we're not going to be able to live the current lifestyle. We're going to have to downgrade into a place that you're not used to. And that's the, that's the challenge. I think that's really the biggest mindset shift between like my journey, starting this, starting with some of the things I talked about doing for Barb at 22, 23, I'm coming out of the college lifestyle. It didn't really matter to me at that point.

Starting point is 00:32:18 Barb and Sally are probably going to have to make a change. That's going to put them back in that world and they're not going to like it because a reduction of lifestyle I think is way harder than just the continuation of what I was doing previously to a large extent. And so that's going to be the really, really big challenge, but you have to do it, in my view, because all of those retirement catch-up opportunities are predicated on you not spending the money somewhere else. If you're going to invest $11,250 in your 401K, for example,

Starting point is 00:32:50 you can't spend that money, whatever it would have been after tax. And that has to come out of your expense account there. And so I still think you're driving a car that is not the one you necessarily want to be driving. And you're living in an apartment that's not the one you want to be living in or maybe even still have a roommate, even in Sally's position here. And you're packing lunch and nail prepping every week around this with Costco membership, not from Whole Foods or getting lunch out every day.

Starting point is 00:33:17 But I think that's the tradeoff is I absolutely agree, take advantage of all of those, especially when you get into Sally's situation and beyond, but know that in order to do that, that's money you're not spending after tax on your lifestyle there. Well, I think that's the underlying issue here is if you want to be able to retire and you're in your 50s, you're in your anythings. If you want to be able to retire, you're going to have to be able to put some money away. So the lifestyle that you're used to right now is going to have to change. You are going to have to give something up in order to be able to take the money that you were spending on that thing and put it into your retirement accounts. And that is kind of the

Starting point is 00:34:01 harsh truth here. And I don't, I don't want to discourage people and make it sound like, oh, you'll never retire, but you won't really retire until you make big changes. Now, the other thing I want to talk about here is investment strategy. So, Mindy, how am I investing? Because I heard that when you're getting closer to retirement age, you should begin diversifying to a certain extent. Does that apply to Sally and Barb here? Well, they currently have zero investments. So their diversification is nothing. I would want them, I would want to see them in index funds. But index funds don't have the super high growth that some well-picked individual stocks have. That's okay. I want to preserve what they have and grow it more manageably than trying to bet on one super hot stock that may or

Starting point is 00:34:50 may not take off. You know, the way I'd frame this question about how to invest is diversification to me is for people who have something to protect. You have nothing to protect here. There's no assets, right? And 100 grand is not going to cut it for your retirement. So I would invest fairly aggressively, and I would do that in a 100% stock portfolio, for example, index funds. Or preferably, what I would do is I'd probably put it all into a real estate house hack or two in those early years because that will deck, that has a chance to defray the cost of living. You can certainly lose what these investments. They can go down. a lot. You can lose more than you invested in a real estate or house hack investment, but I think

Starting point is 00:35:30 that the known is that if we don't invest and we don't begin moving some things forward, we're going to be completely broke at retirement on retirement age. So in Barr's case, I like the house hack, for example, in that first couple of years, and I think that $25,000 outside of the retirement account to enable a house hack is absolutely critical. In Sally's case of the higher income, because we can get much closer to traditional retirement age, I might go more into stocks, perhaps $100,000, percent index fund in the early days and beginning to move more toward a diversified portfolio, a traditional 60-40 stock bond portfolio as I approach traditional retirement age at 65, and it may be cresting the $500 to $750,000 net worth mark at that point if I choose to go the more traditional

Starting point is 00:36:10 route. But I think that the concentration is a key, is a feature, not a bug of the first couple of years of investing if we're truly starting from zero. You know what, Scott? I would love to hear from our audience on that because I have have always advocated for diversification, but I can see your point there. So listeners, what do you think about diversification in Sally and Barb's situation, zero dollar net worth as they are starting to invest? Where would you tell them to put their money? Would you tell them to diversify across a bunch of different investment options,

Starting point is 00:36:50 or would you tell them to concentrate? You can answer in our Facebook group or down below if you're watching us on YouTube. And one other thing I assume here is I'm assuming that Sally and Barb are super motivated because they're listening to this podcast to become much smarter financially, right? And if we're broke at 50, it's because things didn't go well. And we didn't accumulate a lot here, but we're changing that at this point. And I'm not going to give like a woo-woo, you know, get handed over to a financial advisor and start saving 10% of your income thing here.

Starting point is 00:37:20 I'm assuming that you have a pit of fear in your stomach and you want to go after a real amount of wealth that can actually defray retirement accounts. So you're not dependent on the safety net of Medicare and Social Security in retirement at traditional retirement age. And that you're willing to read 50 books and become an expert on this that can talk about it very intelligently and move after it. And so if that's not you, don't do what I'm talking about here. Go talk to a financial planner and try to accumulate $100,000 to defray the Social Security stuff. But if we want to build a portfolio capable of generating a serious supplement to Social Security over the next 10 to 15 years, I think you need to go all out. And we should treat you as if you're an expert or will become quickly an expert in personal finance.

Starting point is 00:38:03 At least a high school, graduate college student level expertise with personal finance and investing. Scott, I have nothing to add. I really like that. What about debt? Neither one of our ladies has debt. what would you advise somebody who does have debt with a similar net worth to our ladies, just deciding to figure out their finances? You know, we recently did a show on the average and median net worth for people by age category,

Starting point is 00:38:33 and even the bottom 10% of folks in their 50s did not have a negative net worth at that point. If that's you, you're going to have to make a trade-off between paying off that debt and investing in the stock market. So I would say, first, hopefully this problem does not apply to the vast, vast majority of Sallies and Barbes that are starting out in the situation that we have articulated. But I think that if I have debt, I'm probably thinking if the interest rate on the debt is over about 8%, got to pay that off. It's just too big of an anchor to do anything else about. If it's less than 2%, I might still push Barb to accumulate cash in the bank and get ready to buy a house hack or similar type of at starter level real estate investment,

Starting point is 00:39:25 because I think the returns you can generate and the opportunity to defray housing expenses is going to far outpace the lower interest rate. So I'd say if you're less than 5%, I'm biasing towards the house hack. If you're over 8%, I am saying, I'm saying, and pay it off. It's an emergency. And if you're in between, you're in between and I don't know the right call. At that point, it depends on your personal preference level. I really can't argue with you there, Scott. I think that there are going to be some people who will say, I'm so sick of being in debt, I can't wait to pay it all off. And there are other people who are going to say, I don't mind the debt. I really want to start investing. I really want to start saving for my house hack. I really want

Starting point is 00:40:03 to start all of these different things. So it really does depend on your personal preference. until you get into like the high interest rates and then I say pay those off. Mindy, I want to call out that the median net worth. So we've articulated this as an approach for Sally and Barb who are have nothing, right? But even the bottom 25th percentile has $84,000 in net worth in their 50s if they have a home or $15,000 in net worth. they don't have a home. $15,000 in the context or a million dollar goal is so little that the approach that we articulated for Barb, I think, applies. But the 84,000 is getting more. And the median amount of net worth for these two groups is $321,000 for the homeowner population and $131,000 for the

Starting point is 00:41:00 non-homeowner population. So it's more realistic, I think, to some degree, that Sally and Barb are going to have between $100,000 and $300,000 in net worth and be feeling like that's not enough to get to retirement. And I think now we have a more nuanced approach. A lot of the themes that we apply it earlier are there, but we can apply the rule of $72 and assume that $300,000 could double twice between now and nutritional retirement age for Barb, for example, and maybe a similar concept for Sally. And $300,000, that assumes, though, that you're invested in stock, in a fairly aggressive portfolio for that. And so I think now there's another thought consideration

Starting point is 00:41:41 that we'll have to explore in a future episode about how to break apart that asset base because I bet you a lot of that is in the home equity and a lot of it is in the retirement accounts, very little in cash. And we still have the same game of how are we going to reallocate those dollars in a tax-efficient way into investments

Starting point is 00:41:57 that can sustain retirement? And how are we going to invest the income stream, my income minus my expenses, on top of that in a really productive way? Yeah, that is a much better position to be starting from. I'm wondering how, that's the median. I'm wondering, does it say what the average is? The average is much better.

Starting point is 00:42:16 So the average for 50s is $1.4 million for a homeowner in terms of total net worth and $1.1 million for the non-homeowner in their 50s. The average is pulled up because the wealthy have so much more wealth that it pulls the average up, which is why median is such a much better. more useful tool. The 75th percentile, for example, is $700,000 for the non-homeowner and 1.1 for the homeowner in terms of total net worth. So the average is skewing that way, is skewed up tremendously by the top 1% or the wealthiest bulk of my country. Yeah, you're right. Am I a true nerd or what, Mindy? Yeah, I already knew that, Scott. Well, look, we want more feedback on this. This is a starting point.

Starting point is 00:43:05 for talking about this. We know that there's a number of people out there that are looking to catch up to traditional retirement. Bigger Pockets Money has been largely about financial independence retire early for folks trying to retire in their 30s, 40s, 50s, maybe even 20s in some cases. Less about the traditional retirement path to their 60s.

Starting point is 00:43:24 But let us know what you thought of this episode and whether you'd like more content on this and for us to maybe build this persona of let's call her, let's call her, let's call her Karen here, who's got a several hundred thousand dollar net worth, the median for this person, and maybe a little bit above the median household income as well, because I think a lot of the folks that maybe listen to Bigger Pockets Money or in that median category later in their careers are probably earning the median for 50-year-olds, which is higher than

Starting point is 00:43:54 the median for all Americans that work. So I think that's probably a good persona for us to do next, but we'd love to hear your thoughts, Bigger Pockets and Money listeners, and let's talk about it, that would be interesting. All right, Scott, should we get out of here? Let's do it. That wraps up this episode of the Bigger Pockets Money podcast. He is the Scott Trench, and I am Indy Jensen saying goodbye, Dragonfly.

BiggerPockets Money Podcast - Broke at 50? How to Retire On-Time (Or Early!)

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