At Myvesta.org we talk to hundreds of people every week who are just around the corner from retirement but have no idea how they are going to cope without a regular paycheck.
It's a tragedy to think of these people struggling to get by on Social Security when they should be enjoying their leisure time. But the harsh truth is, they have nobody to blame but themselves.
As our good friend Ric Edelman says, "Unemployment and retirement are identical. If you can't afford to give up 10 percent of your salary now to invest in your golden years, how are you going to give up 100 percent when you stop working?"
Of course, planning ahead is always easier said than done, so we got some advice from Bill and Mary Toohey who managed to accumulate a cash pile of nearly half a million dollars in just eight short years on a combined annual income of just $65,000.
This self-described "average" couple shows how it can be easy to prepare properly for your family's future security.
"We really are just average people," said Bill. "And it wasn't all that tough. Basically what we do is invest in very low cost mutual funds. That's where we can get the best return for the least amount of risk and the lowest expense."
Bill warned about getting caught up in the hype of a skyrocketing stock market.
"If you go looking for the next 'hot stock,' over a long period of time you're going to be burned," he said. "We're investing for a lifetime; not for a week or a month or even five years. And I think we're going to come out ahead."
The Tooheys have an excellent way of encouraging people to start on the road to financial security. They tell everyone that it's just like winning the lottery -- only it takes eight years to do it.
However, Bill and Mary go against some of the traditional financial advice. They write about why saving doesn't work in their book, The Average Family's Guide to Financial Freedom: How You Can Save a Small Fortune On A Modest Income.
"Saving doesn't get us where we want to go," said Bill. "We spend probably a hundred times a month but we only save once or twice a month. We're very, very careful about spending because that's where the action is."
The Tooheys ask themselves these questions before they spend any money:
-Do we really want this?
-Do we have to have this?
-Can we substitute it for something less expensive that will give us just as much enjoyment?
"It's not that we don't save," continued Mary, "because we end up with money at the end of the month and we put that away. When we say saving doesn't work, we're talking more about the typical plans -- paying yourself first, that sort of thing. That's where we think you're going to end up with pretty paltry returns. Take your spending off autopilot, then you're going to have a whole lot left over at the end of the month to send away for investment."
"Also, I think that you can do some brainstorming about how to just make smarter decisions," continued Mary. "If you say, 'Gee, this phone bill's really out of line here,' you don't have to stop making calls. Maybe you can start looking into other phone carriers. Maybe you can get a better rate somewhere."
(Visit Myvesta.org's money saving section where you'll find ways to help cut your bills on long-distance, home insurance, health insurance, car insurance, utilities and more.)
Although described as "average," the Tooheys encountered above-average expenses during the last eight years and have still managed to achieve their goals.
"We have three kids," explained Bill. "We had just about every major expense you can imagine. One of our children has a lot of medical problems, so we had those expenses. But our daughter got her college degree debt-free. It's really just about being very careful how you spend your money."
When challenged that perhaps their lifestyle might be a little too harsh for the "average" person, Bill was insistent.
"We don't live frugally," he maintained. "We've got two cars, two good computers, three color TVs, two VCRs, central air. Although our house is small - we have a three bedroom, one bathroom house - it's not that tough."
Down to specifics, then. Just where did the Tooheys put the money collected by spending carefully?
"The first thing you want to do is find very low-cost mutual funds," said Bill. "We invest in the lowest-cost mutual funds in the industry."
Low-cost doesn't mean low return, does it?
"No. That's a good point. It means low expenses," clarified Bill. "In other words, the amount of money we pay on our investments is about two-tenths of 1 percent a year."
"We're in the Vanguard Total Stock Market Index Fund. That's where we have all of our U.S. stock investments. We also invest in the Vanguard International Growth Fund, the Vanguard Total Bond Market Fund and we also have some cash in the Vanguard Money Market Fund. So we're really invested about as broadly as you can be, yet we're only in three funds."
Why invest in all three Vanguard funds instead of diversifying the money?
"We had so many plans," said Bill. "We each had an IRA, a Simple and a Roth account, so we just had to get them consolidated for simplicity."
It's not that Vanguard is the only company out there, it just happens to be convenient.
""Exactly. There are other companies out there that are great," said Bill.
Investing wisely has made the Tooheys financially secure, but they still advise getting all your ducks in a row before starting to put money into a mutual fund.
"We suggest people build a foundation before they invest their money," said Mary. "Make sure you've got enough coverage in terms of car, home, health, life insurance -- that sort of thing. Make sure you've got a good education so you can get a decent job. Pay off any bad debt and set aside enough of a safety net, maybe six to eight months of living expenses, that you can get to in case you need it. Then you're really going to be ready to invest."
Myvesta.org is a national, nonprofit financial solutions organization headquartered in Rockville, Md. Founded in 1994, Myvesta.org has helped more than four million people through its programs and educational resources. The organization is committed to helping people resolve past financial mistakes, manage current financial responsibilities and find financial peace of mind. Myvesta.org's programs and services include debt management, crisis resolution, online bill management, creditor problem resolution, coaching and Financial Recovery Counseling. Prior to April 2000, Myvesta.org was known as Debt Counselors of America ®.
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