Why I didn't spend a dime of my windfall
Posted
Nov 19 2008, 10:58 AM
by
Donna Freedman
Rating:
Two thousand dollars fell into my lap recently. A publisher that five years ago used one of my articles in a high school literature book wanted to renegotiate the contract because the textbook is being updated.
I was shocked, and delighted. And conflicted: What should I do with the money?
Should I put it in a short-term CD? Dump it all into savings? Deposit it in the retirement account I started last year? Or maybe, since it was found money, I should lend it to a family member who's struggling with debt -- two grand makes a mighty big snowflake.
This was a surprisingly difficult decision, even though in retrospect it seems like a no-brainer. For me, it came down to this: How do I balance the need to feel financially secure right now with the reality of retirement?
My first step toward security came last fall, when I got out of debt. Second on the list was creating an emergency fund, so I started socking away every dollar I could. The EF was fully funded and then some by the sale of a few pieces of art earlier this year. I keep some of the fund in a traditional bank for easy access in a true emergency, but most of it's in an online bank account.
So I'm doing all right -- for now. But like many other Americans I don't think my traditional retirement sources will be enough for later.
Cobbling it together
The newspaper I worked for between 1984 and 2001 didn't offer a 401(k) until 1990, so I was able to fund it for only 11 years. For this reason, the account is not particularly large. (And it's getting smaller thanks to the current economic turmoil.)
The company started a pension plan at the same time as the 401(k). I'll get about $540 a month from it unless something happens to that fund, too. I also own 14 certificates of deposit that my ex-husband and I opened up back in the 1980s, but we rarely contributed to them after those initial opening deposits.
Then there's Social Security, but that's not exactly heavily funded either. From age 18 to 20 I worked irregularly, due to a less-than-ideal life situation. At age 21 I took a "permanent part-time" job, working 30 to 35 hours a week. It wasn't until age 26 that I got a full-time job, and by age 45 I was once again out of the workforce. I've been freelance ever since. When I won a full-ride university scholarship a couple of years ago I decided to remain freelance, in order to do justice to this opportunity.
Don't get me wrong: I'm lucky to have these resources. Some people have nothing at all. But I will almost certainly have to postpone retirement. I'm not alone: According to this article from Bankrate.com, one in five Americans expect they'll work until they die.
Does stability exist?
Generally speaking, women face a different set of challenges than men when it comes to saving for the golden years. For starters, they live longer; according to this MSN article, today's 20-something women will probably make it to their late 90s.
Women are paid less than men, and may drop out of the workforce for periods of time during childbearing years. Even if they do work, they tend to do more of the child care and home-related chores, which leaves less time/energy for contemplating investment strategies.
They're culturally conditioned to put themselves last, and thus are more apt to spend money on their children's college educations or to help their aging parents than fund their own retirements. One of my first thoughts about what to do with the two grand, as noted above, was to lend it to a family member.
As a kid, my idea of retirement was based on what I saw all around me. You worked for a factory or insurance company or auto shop or school system for 40 years. If you happened to like a particular line of work, so much the better -- but that wasn't why you worked. You worked to pay the bills and support yourself and/or your family. And when you were too old to work any longer you drew a pension.
Yet I also saw people lose their livelihoods when the glass factory closed. I saw people with little education and few skills move from job to job, hoping for a living wage. As a young adult, I saw instability everywhere: factory shutdowns, widespread layoffs, pension funds that couldn't keep pace with inflation.
Without much schooling myself, I was very lucky to land in a job that allowed me to do what I loved to do: Write. For 18 years, that's how I made my living. And then my life changed again. A combination of circumstance and choice put me in an unenviable situation: middle-aged, uneducated and broke.
Taking control, finally
That was my wake-up call. For the first time ever I looked closely at my life and my finances, and I didn't like what I saw. During those 18 years of employment I had drifted: no investments, no real financial planning. This was due in part to financial ignorance (mine and my then-husband's), and in part due to the fact that I was deeply depressed and incapable of making smart choices.
Now I have to play catch-up -- at the same time that I'm working toward a college degree and working only part-time while I do it. That goes a long way toward explaining frugality as a life choice.
One of my resolutions for 2009 is to visit a financial adviser and have him or her look over my patchwork of solutions. Chief among my concerns is what steps I must take to be able to support myself in my old age. Not only would I not want to rely on my daughter, I can't realistically do so because she is disabled.
That's the reason I wound up putting the entire $2,000 into the Roth IRA, bringing the year's total contributions up to $2,600. The other payment was my economic stimulus check. (I decided not to go shopping.)
That's also the reason I've decided to take $2,500 out of my EF/savings account to meet the maximum annual Roth contribution for 2008. It scares me, frankly, to take any money out of savings. But it just doesn't make sense to delay funding my retirement any longer.
Something that MSN Money personal-finance columnist Liz Pulliam Weston wrote recently has been nagging at me. She cited an AARP survey that indicated 20% of workers 45 or older had stopped contributing to their retirement funds.
"While the current market turmoil may mean a delayed retirement for many people … failing to fund your retirement accounts could mean no retirement at all," Weston wrote.
Point taken. To those of you who are also wondering if you can ever stop working: MSN Money's retirement page has articles to help. I'd encourage those who have little or no savings or pension to look for some way, even a small way, to build retirement into the budget.
I'm very sorry that I waited until my late 40s to start turning my life around. But better late than never.
