Just recently I was browsing a certain investment related discussion board for some information regarding a specific investment strategy when I found a discussion related to age discrimination. The discussion was specifically about the increased risk of being fired or made redundant at work when reaching the age of 50 and being on your way to 60.
The folks involved in this discussion not only talked about the age discrimination and the risk of being laid off, but also about the importance of having a) enough money in an emergency fund and b) ideally having enough money saved by the time one turns 50 to potentially retire. Now, most Americans neither have an emergency fund or enough money to retire, so I wanted to pick up this topic and talk about it here on the blog as well.
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If you are living paycheck to paycheck you probably know how devastating a loss of employment would be. If you get laid off, you cannot necessarily count on a generous severance pay nor can you count on unemployment to cover your expenses. So, the lack of having an emergency fund puts you and your family at a major risk and you should address this as quickly as possible.
Depending on your fixed cost of living the size of your emergency fund matters. In addition, it is critical to understand how good your skill set is to find a new job and to find a job that pays the same salary (or more). Highly skilled workers should have less problems finding new work, but remember we are talking about your age here, too. A 55-year-old nurse will have less problems finding a new job with similar salary compared to a 55-year-old accountant. A generic IT worker (Tech Support) at age 60 is better of becoming self-employed than trying to find another job with the same pay.
How large should your emergency fund be?
As a minimum you should plan to have at least 3 months of living expenses covered with your emergency fund. The older you are, the more you should have saved. I am turning 52 this year and I currently have 8 months of expenses tucked away in my emergency fund. I am not actively adding more at the moment, but it keeps growing due to interest. In a separate account at Acorns I am saving more money related to my emergency fund. Acorns is a service that scans my checking account for expenses and then uses a round-up method to save money for me. So, as an example – if I spend $25.43 at the grocery store, Acorns will round up the amount to $26.00. It will not take $26.00 out of my account, but 67 cents and transfer it into my account at Acorns. This happens for any type of activity in my checking account. These “acorns” or round-ups will then be invested every time the balance reaches $5.00 in my Acorns account. These are small amounts and honestly, I do not even feel that the money is gone from my account. It is a super convenient way of saving some extra money.
You can join Acorns through my referral link. Please check them out.
With earning interest and investing via Acorns I let my emergency fund grow. At one point I might transfer some of that money into different investment options, but for now I do not have to worry too much about it.
Be financially independent by age 50
Well, I hate to admit it, but I am nowhere close of being financially independent and I will turn 52 this year. I am not looking back to determine where I made mistakes financially in the past. I am not going that way. I am looking into the future and need to make the best financial decisions possible now based on my situation. By the way, just because you should be financially independent by age 50 does not mean you need to stop working. Of course you could, but you do not have to.
Now we are taking lessons from the young millennials and work hard on becoming financially independent as quickly as possible. The FIRE (financially independent retired early) community shows us the way. Reduce cost of living, increase the savings rate, invest wisely, and be disciplined. It is a simple recipe and it will get us where we need to be. Ideally time will be on your side that everything works out nicely and you can retire in style and enjoy the golden years as much as possible.
Early retirement is not a competition
If I would have known about FIRE 20 years ago, I would be retired by now. But I did not know and while I was financially responsible, I am not on track with my financials for retirement. Or better, I am now in charge of my future and have made the arrangements to be on track as soon as possible.
Some of the FIRE millennials make it sound as if it would be something bad if you are still not able to retire when you are 50, 55, or 60 years old. That is stupid. This is not a race and whoever retires first wins. So, please do not take these things to heart and rather make the appropriate steps right now. Prepare and plan everything and then execute the plan. You will still be way ahead of the majority of Americans that have to work past 70 just to get by.
And sometimes you just have to hang on for the ride and hope that all the stars align and things will be fine. I am aiming to retire when I turn 60 and that target date determines now how much money I need to save and how I invest. Maybe I have to realize when I turn 60 that I need 2 additional years and there is nothing wrong with it, because that is really not bad. It would be bad if I do nothing today and then 60 comes around and I have to realize that I am 8 years away from being able to retire. Then I would be really concerned about being able to stay employed and make enough money to reach that magic goal of retirement.
Upgrade your Skills
So, we covered the financial side of things, but we have not looked yet at your employment and your earnings. The first critical step is to upgrade your skill set and make yourself more valuable as an employee. Speaking of value – the older you get the more important it is to provide value to your employer. You do not want to make the list of being expensive and seen as an under-performing employee. Now is not the time to coast and to ride off into the sunset. Roll up your sleeves and move to the front of the pack. Your skill set needs to be recession proof. You need to deliver and show those young guns that they better be ready to work hard to keep up with you. Maybe your employer pays for training and going to conferences. Take advantage of these offers. If you have to spend your own money on training, spend it wisely. I doubt a new college degree would pay off at this stage of your career.
There are low-cost training options available from LinkedIn training, Udemy, or Skillshare. I subscribe to the annual option of Skillshare and have access to thousands of courses. If you want to check them out, please use my referral link to get 2 months of free access to all their courses. Click here to visit Skillshare. If you decide to sign up with them at the end of the 2 free months, I might earn a small referral fee from Skillshare – which I would greatly appreciate as it helps me the cost to maintain this website.
I work in information technology and for the entire time in my career I have made it a habit to be on the forefront of new technology whenever I can. I have also re-invented myself a few times by either specializing very early on a super hot technology or by slightly adjusting my career by moving from the technical IT track into IT management and within IT management to service delivery and managing the global support organization for my current employer.
Early retirement is not a race. We are in the same boat in the end and need to work with our situation as it is today. There are three key items to look at and to work at today.
1) Build a large-enough emergency fund to cover at least 6 months of living expenses. If you get to be laid off in your 50s your job search will take longer to find a new job and in many cases the new job will not pay as much as the old one.
2) Update your investment strategy to optimize earnings and growth for retirement. Increase your savings rate as much as possible to further boost your retirement funds. If you read this early enough in your life, make the necessary steps to be financially independent by age 50. The key is to control your expenses and lifestyle, save money, and invest wisely.
3) Make yourself more valuable by learning new skills. Upgrade your career and show the younger kids at work that age does not mean your old and outdated. You got this.
Don’t put yourself under unnecessary pressure. If you follow your plan with discipline and determination everything will work out. Just like I said above – I am shooting for retirement at around 60 and my plan reflects on that. If it turns out that that was not enough time, I still should not be too far off from that goal. At that point another year or two before retiring does not make a big difference. But waiting until then and not having planned appropriately – that sets you up for needing to work into your 70s eventually.