8 Signs You’ll Retire as a Bag Lady Living in a Cardboard Box
Bag lady syndrome is a real thing. It’s when women (or men, for that matter) fear running out of money, losing their homes, and ending up destitute and alone. It’s a fear of having nothing to your name except for some shopping bags stuffed with basic belongings. It’s surely not a way anyone wishes to retire. According to one study, almost half of all women fear ending up broke and homeless.
What can you do to combat bag lady syndrome? The most important step is to make sure you’re saving properly for retirement. Here are eight mistakes that could be hindering your retirement saving, plus important changes to help you get back on track.
1. You expect to live comfortably on Social Security
- Social Security only replaces about 40% of your pre-retirement income.
Think you’ll be able to retire comfortably just on Social Security? Financial guru Suze Orman says that on average, Social Security replaces about 40% of your income amount before retirement. That’s probably not nearly enough money to keep living as you were pre-retirement. To retire comfortably, you’ll need other sources of income such as a pension, 401(k), or IRA.
You can check your Social Security earnings and get benefit estimates by going to the Social Security website. If you don’t yet have an account there, it’s free to set one up. Social Security uses your highest 35 years of earnings to calculate your benefit. Log on to check your earnings every year to verify Social Security has your correct earnings history.
Next: Who would turn down free money?
2. You’re eligible for a 401(k) yet haven’t signed up
- Your employer match is free money.
Do you want to save for retirement but don’t know where to start? The easiest way would be through your employer’s 401(k) plan. What makes it easy is the mutual fund investments to choose from have already been narrowed down by your company. And the real beauty of it? The pre-tax money is automatically withdrawn from your check and deposited into the account. It’s a lazy person’s retirement saving dream.
Another big advantage of a 401(k) is your employer may match how much you save, to a certain extent. For instance, some companies match employee contributions dollar for dollar contributed up to 6% of their pay. You can’t go wrong with having free money added to your account.
Next: Get on track with a handy online tool.
3. You underestimate how much you’ll need to save
- 78% of workers underestimate the amount they’ll need saved for retirement.
Do you expect your expenses to drop sharply when you retire? Some financial gurus claim you’ll spend 30% less after retiring. That’s “hogwash,” said Forbes contributor Bart Astor. “I would count on spending in retirement close to what you currently are – at the very least, 85%,” he wrote, citing reasons like rising health care costs. Plus with people living longer, retirement dollars will need to stretch even further.
Try using an online retirement calculator to estimate how much money you’ll need to have saved up. This is a solid first step in creating a retirement plan or a way to see if your savings to date are on track.
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4. You don’t follow a budget
- If you can’t save 10% to 15% of your income, cut back on spending.
Take control of your finances. Create a spreadsheet of money brought in and money going out, so you can see where spending needs to be tightened. Print it out and slash items with a big fat red pen if that makes you feel better. You’ll almost instantly feel more in control. Once you’ve learned from listing everything and making a spending/saving plan, be sure to follow through with the plan. Look at it this way: It’s in writing now, so it’s official. See this handy article from The Cheat Sheet with seven steps to managing your money.
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5. You have credit card debt
- The average household has over $15,000 in credit card debt.
Paying credit card bills takes away valuable dollars that could be saved for retirement instead. Other than absolute emergencies, avoid using your credit card for anything you can’t pay off when the bill comes. If you’re looking to pay off credit card debt while ending the accruing interest, switch to a card with an introductory 0% APR offer. This will help you pay off your debt more quickly without new interest charges.
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6. You haven’t researched long-term care insurance
- The typical 65-year-old has a 52% chance of needing long-term care insurance at some point.
Many of us have experienced firsthand the financial, physical, and emotional burden of caring for an aging relative. If you don’t want to be a source of hardship for your loved ones, research long-term-care insurance. Such insurance covers the costs of help with a person’s basic daily activities like bathing, dressing, and eating. It also covers skilled medical care provided by a nurse or therapist.
However, be aware that this insurance is often pricey. The average annual policy premium runs around $3,000. On the other hand, the median cost of a private room in a nursing home is now $92,000, and the median cost of an in-home health aide is $45,000. This AARP article lists different ways to obtain a long-term-care insurance policy. It also recommends talking with a financial advisor to thoroughly weigh the pros and cons of purchasing this type of insurance.
Next: Clutter could be a hindrance.
7. You have stuff in storage
- Cost of a storage locker: $40 to $225 per month
There’s something overwhelming about having a storage unit full of possessions — including the financial drain. If you pay for a self-storage unit on a long-term basis, this is a sign you may be wasting money on possessions you’ll never need. Typical storage units range from $40-$225 per month, depending on size. And watching just one episode of Storage Wars will show you what happens when you can’t pay your bill: Your stuff gets auctioned. For perspective, know that after a few years of keeping a storage locker, you’ve paid enough money to have spent on a good used car.
The lesson here? A storage locker is an item to keep entirely out of your budget, so you can spend less and save more for retirement. Plus, what retiree needs the hassle of figuring out what to do with the dusty contents of a storage locker?
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8. You don’t network with others
- 80% of professionals consider networking important to career success.
Make it a point to get out and socialize a couple of times each week. Friendships and other connections you have maintained over the years will be an asset if you ever suddenly find yourself out of a job. “You will likely get a job through who you know rather than through your education or work experience,” said Madeline Bell, president and CEO of The Children’s Hospital of Philadelphia.
Also, meeting up with friends regularly is a great way to learn of new opportunities and get ideas – all of which could help you financially.
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