Need for retirement savings ‘walks in on cat’s paws’

Helen looked at the sheet of paper in her hand explaining to me her neatly typed monthly expense numbers, then hesitated and grew quiet. She put down the pencil and wiped a small tear from her eye and with barely audible voice said:

“Reality walks in on cat’s paws!” – She had just turned seventy five and was running out of money.

I had asked Helen to jot down her monthly and annual expenses in preparation for our meeting to figure out how a reverse mortgage can help her close the gap between longevity and financial resources. Based on that we put together a budget for the year on the back of an envelope and made projections for 10 and 20 years compounding at a 5 percent annual inflation rate.

We also built different ‘what if‘ scenarios: What if she has a prolonged hospital stay? Is she prepared to pay for it? What if she needs a new roof on the house? How will she pay for it? Can she afford in-home care?

When Helen realized that with a reverse mortgage she can deal with different exigencies, her face brightened and she said: “I wish I had started making annual budgets 50 years ago!”

Learning from America’s retirement crisis

The majority of our baby boomers and seniors are not in a position to retire comfortably. Helen is lucky. Her savings were locked up in the equity of her home. Younger people watching the country’s retirement crisis unfold, slowly but inexorably, ought to ask themselves “How can we do better?”

First, develop your own budget. A budget helps you achieve your financial goals, and it allows you to know where your money is coming from and where it is going. Without the discipline of a budget very few people accumulate substantial wealth. The budget process clarifies your goals and requires to set priorities. Comparing actual spending with the budget on a monthly basis keeps you on track and allows you to make corrections based on facts rather than guesses.

You can find lots of help for developing your own budget. Here are some suggested websites: or or or

Second, keep cash at home. Keep at least one month’s salary in cash in your home at all times. You will be glad when ATMs are not working and computer networks go down for unexpected lengths of time.

Third, build an emergency fund. Accumulate around three to six months of salary in cash and keep it in a money market account. You will need it if you are between jobs with no income. Such an emergency fund also provides peace of mind.

Fourth, design a life plan. Write down how you would like to see your life unfold. Think through your life cycle and what you dream of achieving. Visualize yourself at the different stages in life and ask yourself what you want to be at each station. Map out your life in broad and bold strokes, and then as you stand in front of this big picture, begin to figure out a step-by-step plan to make it happen.

Once you have gone through such an exercise, a financial plan is a lot easier to make and investments fall naturally in place.

Developing a life plan and committing it to paper is very challenging for anyone. Only three percent of all college graduates have a life plan when they step out into the world. However, those three percent accumulate more wealth than all of their classmates combined over a lifespan.

Fifth, learn to save and make it a habit! The foundation of building wealth rests on saving. Saving means taking care of yourself and paying yourself first. This may be a daunting task but it does become easier when you ask yourself the question “Is this a need or a want?” before you even spend a single dollar. Take your gross income and pay yourself 10 to 25 percent first. Then live on the remaining money.

For example, if you earn $50,000 per year, pay yourself first. Save 20 percent or $10,000 for your future and now live on $40,000 per year.

Let’s assume you are 30 years old and you decide to save $1,000 per month and put it into an investment vehicle that provides an annual return of 5 percent. With such discipline you could be a millionaire at age 63 and at age 65 you would have a total sum of $1,112,979.

Looking at these numbers it is important to learn about the power of compounding interest.

From saving to investing

Making money, for most of us, is a full time job. We spend more than 2000 hours per year on it. After that kind of commitment, how much time is really left to manage our money, grow and maintain it?

Money management alone is time consuming and requires discipline and hard work. It is easy to ignore, but before long, we enter middle age and an inner voice in the back of our minds nags us, reminding us of financial inadequacies and unfulfilled dreams. Therefore, once the habit of savings is inculcated the next big task is ahead: learning how to invest.

The investment field is vast, forbiddingly complex, and more often than not contradictory. No wonder we want to abdicate the responsibility of making investment decisions, hand over our money to an investment advisor, and simply get a statement once a quarter for our review. But doing so is the same as asking someone else to make money for us.

As a business person you might ask for expert advice on subjects with which you are not familiar, but you would never expect someone to tell you how to turn a profit in your business. Investing your money is your business!

You learned how to make money. You developed a habit of saving. But now you have to learn to work with your money, investing and growing your accumulated savings. If you are unfamiliar with investing, take small steps: Read about investments, start with “Investments for Dummies” and move forward step by step expanding your knowledge and confidence.

Over time, you learn what is right for you to achieve your financial goals and the time will come where you need to engage professional investment advisers and wealth counselors to help you in your business of creating lasting wealth providing you with security and peace of mind as you move through retirement.

Andreas Keller is a Reverse Mortgage Specialist at Southern Trust Mortgage, a Subsidiary of Middleburg Bank, and can be reached at his cell phone 703 346 7262. His personal website is