You can catch up on retirement planning

It’s not easy, but 50 isn’t too late to start

If you want to retire successfully but are starting from scratch at age 50, you need a plan.

For me, I think it was hearing a fourth person in two weeks tell the same story that tipped the scales.

Recently I met a 50-year-old woman who made a solid income but basically had nothing saved for retirement. A couple of days later, I met a man who was her financial mirror image. A week after that, I met another

50-year-old man who hadn’t saved a figurative dime. Then I met yet another 50-year-old woman who had nothing.

For them, I felt sad, scared, mad and, more than anything, challenged – challenged to find a reasonable strategy that would help a 50-year-old American work over the remaining 20 years of their career to live a respectable retirement.

Although my plan is realistic, it’s intense. A 50-year-old has only 20(ish) years to build the missing financial foundation, the walls, the roof, the moat and everything else a person needs to survive decades without work income.

Since the average annual income of the four people I recently encountered was

$60,000, we will use that to illustrate the plan. Depending on cost-of-living adjustments or raises you might get going forward, you will earn somewhere between $1.2 million and

$1.6 million over the next 20 years.

This million and change must help you deal with any financial past you might have and provide you a sensible lifestyle, all the while building sustainable income for retirement. Piece of cake.

The plan has four parts (three if you aren’t starting with a load of consumer debt). The four parts involve debt reduction, asset accumulation, lifestyle shrinkage and home ownership. All four parts intermingle with one another, but we’re going to tackle them independently.

The first part involves a twoyear cleanse. You might not like it, but you’ll love the results. These two years will be the most challenging. Why? Because you will need to do a hard reset. Your two primary tasks are to pay off your consumer debt and contribute to your company-sponsored retirement plan.

Time is your friend when it comes to growing your nest egg. You need to get money set aside now so growth can occur. If you don’t have a companysponsored retirement plan such as a 401(k), start a Roth IRA. You will need to contribute at least 5 percent of your income to your company-sponsored retirement plan (hopefully activating any employer match).

At the end of your initial two-year period, those contributions (along with the match) will equal approximately $10,000. If you’re already contributing more than 5 percent, excellent. Don’t reduce your contribution. Instead, turn your focus to the second task, getting rid of debt.

In this example, after putting 5 percent of income in a retirement plan, paying taxes (I’m using Indiana state income tax rates) and paying for health care coverage, your monthly take-home pay will be approximately $3,400.

It’s a good bet that, currently, your $3,400 is being asked to do too much. These next two years are about shifting that paradigm.

Paying off debt requires a serious commitment. If you’re merely interested in getting out of debt, it won’t happen. You will need to significantly adjust your spending habits. This may involve getting rid of a car that has a high monthly payment or changing your dining and shopping habits and/or eliminating vacations and enter- tainment spending.

Redirect all of those monies toward your lowest balance debt until it’s eliminated, then attack the next lowest debt until it’s vanquished. The key is to pay minimum payments on all of your debts, except the lowest-balance debt. Pay that off with as big a payment as possible.

I’ve found this methodology has the lowest failure rate, although you may pay more in- terest than using other debt elimination techniques.

If you learn $3,400 isn’t enough to eliminate your debts, then you may need a second (or third) job. Get one. Doing the hard thing is what this twoyear period is all about. Honestly, it’s now or never. You don’t want the hard part of your financial life to be later. Trust me.

Be sure to direct all of your additional earnings toward debt elimination. If you don’t, you’ll grow your lifestyle and make your problem worse.

Peter Dunn is an author, speaker and radio host, and he has a free podcast: “Million Dollar Plan.” Have a question for Pete the Planner? Email him at AskPete@petetheplanner.com. The views and opinions expressed in this column are the author’s and do not necessarily reflect those of USA TODAY.