Doing Nothing Doesn't Work

Jim is 56 years old and has $44,000 in a 401(k). His wife has ongoing medical expenses. Is it too late for Jim to start planning for old age?

QUESTION: Jim in Knoxville is 56 years old and has $44,000 in a 401(k). His wife has ongoing medical expenses. Is it too late for Jim to start planning for old age?

ANSWER: What’s the alternative? You’ve got to do something, right? Doing nothing’s not going to work. Really, the best thing I know—the best way I know to build wealth is get rid of the debt.

Paying off your debt frees up a lot of money, and then I’m just going to get really, really aggressive.

As soon as you finish up the debt, I want you to do an emergency fund of three to six months of expenses. That'll take some of the pressure off the monthly stuff with some of the future medical bills maybe. Then really, after you’ve got that in place, you only have three goals. One of them is we’re going to put as much as we can possibly put into retirement. I mean, just go crazy on it. Then, in addition to that, obviously, we’ve got to pay future medical bills with your wife's future medical needs. The last goal would be to talk about buying a home and buying something inexpensive that you can pay off in the next 15 years.

If you save 15% of your income, that’s going to be about $10,000 a year. If you do that for 20 years, you’re going to be in pretty good shape financially. If you only work 15 years, it’s going to be less money. If you were to save $800 a month for 15 years, you’re going to be fine—into a good growth stock mutual fund into your Roth IRA—you’re going to be fine. But we’ve got her medical bills to contend with, and we somewhere in there need to get a house bought. But yeah, you can do this. It’s very doable, Jim. I think it’ll work good for you.

Hold on. I’m going to have you go through Financial Peace University—our class on how to handle money—and it’ll show you exactly what to do, and I’ll pay for it. I think you can do this.