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How Financial Setbacks Took A Toll on My Retirement Saving

by retirebyforty on March 17, 2014 · 27 comments

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how financial setbacks can affect retirement saving

Today’s article is from Mr. Utopia. You can find his bio at the end of the article. 

I started saving for retirement when I was still in high school. No, that’s not a misprint. I landed my first job during the summer before my senior year and promptly opened a Roth IRA account at 18 years of age. Now, I’d like to take all of the credit for being a financially savvy teenager who had the foresight to begin retirement planning before even voting in an election. The truth is, my parents urged me to set up the Roth IRA and I went along with it because I knew it was a good idea even if retirement seemed eons away.

While I don’t have any statistics to back me up, I’m willing to venture I began saving for retirement before 98% of the population. If I got off to such a fantastic start, then surely now that 15 years have elapsed, I should be miles ahead of peers in my demographic, right? Unfortunately, things haven’t quite unfolded that way.

Hit Hard by Financial Setbacks

I’ve endured successive financial hardships over the years that have done their best to derail my retirement savings momentum. These tribulations varied in degree of harshness. Also, some of them were more within my control than the others. Nonetheless, they served to throw a serious wrench into what was once a promising retirement savings trajectory. Here’s what happened:

  • Lost my house - I became a proud, first-time home owner in 2006. What ensued was an absolute disaster that I’d wish upon no one and resulted in a nightmare foreclosure. Long story short, despite all the normal precautions any home purchaser would make (like paying for a thorough home inspection), I bought a “lemon” house unbeknownst to me. In fact, later investigation revealed obvious signs of the sellers covering up numerous leaking problems and then, illegally not disclosing them during the purchase process. What I ended up with was a property infested with toxic mold and needing $125,000 worth of repairs! I pursued legal action, but really couldn’t afford the prohibitive legal fees to carry out any litigation. In the end, I had to walk away and lost the house to foreclosure. The whole saga was a significant blow to my ability to continue making retirement savings contributions.
  • Was laid off - The same month the foreclosure became official in 2008, I was greeted with a “pink slip” at work (on my birthday!). It wasn’t a complete shock (well, the birthday part was) because I was working in the banking industry as a small business loan underwriter and the signs of the impending banking collapse were just starting to reveal themselves. While not totally unexpected, there hadn’t been any time to make a preemptive job change. Thus, I was left unemployed and dealing with all of the accompanying stress that situation induces. Retirement savings were obviously one of the last things on my mind at the time. Fortunately, I was blessed to get hired for a new job only a few months later right at the time when the rest of the economy was tanking. In the end, being laid off did not have as severe an impact on retirement savings as it could have. However, it did cause some damage especially since I was still reeling from the foreclosure.
  • Lots of debt - The last event in the financial setback “trifecta” was debt…lots and lots of it! Now, this wasn’t something that necessarily came out of the blue and I did have a choice in the matter. That said, it was still something I had never really expected. Before I met her, my future wife had incurred over $100k of school loans. I had taken out another $40,000 to fund my MBA. Needing to repay $140,000 in combined school loan debt is quite the obstacle to saving for retirement. We tackled the debt head on though even if it meant having to assign a lesser priority to retirement savings. In the end, we paid off this debt in less than 3 years!

Financial Setbacks and Retirement Planning

All of these tormenting trials helped me learn some valuable lessons. Don’t get me wrong, if I was able to turn back the hands of time and avoid these setbacks – I would. That said, it’s definitely made me a stronger person. If you find yourself in the midst of a horrendous financial hardship, then perhaps you will find solace in my story and knowing that you can get back on track. Here are some things to keep in mind:

  • Continue on even through crisis - Despite all that I went through, I never fully ceased contributing at least something to my retirement savings vehicles. Sure, it wasn’t at the amounts I wanted to be funding, but continuing to make contributions through the bad times will at least give you some peace of mind that you haven’t completely lost all hope of ever retiring!
  • After the tough times are over: refocus - When you’re in the middle of the storm, it feels like it’ll never end. But know the adversity will pass eventually. When that happens, get back on track. Refocus your efforts on retirement savings. You can’t make up for lost time in the sense that you can still only contribute the max yearly limits into traditional retirement accounts. However, make sure you achieve those contribution limits if you can do so going forward. If not, do your best to progress to those goals.
  • Find other ways - You don’t have to just fund retirement accounts to save for retirement. Explore other methods to invest or increase your income potential. There’s a multitude of ways out there whether it’s pushing vigorously for a promotion or searching for ways to earn side income. You’ve just got find the right opportunities and then work hard at it.

What My Retirement Savings Situation is Now

My wife and I are still in Phase I of Mr. RB40′s 7 phases of retirement, but we are taking the steps to enter Phase II. Even though we are making decent progress nowadays, I’ll admit, oftentimes retirement feels like it’s still a million miles away. When those feelings of doubt creep up, I remind myself how far my wife and I have come. I also take comfort in knowing we are doing what we can to further enhance our retirement savings efforts and gain momentum to make up for lost time.

I’ll leave you with this:

Financial hardships hit everyone, some worse than others. If you find yourself in such a situation, know that is possible to keep your eye towards retirement during the crisis and then to get back on track once life has returned to normal. If you ever doubt it, let me know and I’ll help talk you down off the ledge!

Have you experienced financial difficulties that derailed your retirement savings efforts? How did you persevere? What steps did you take to get back on track? Any particular lessons learned?

JC, also known as Mr. Utopia in the blogosphere, is a senior financial analyst at a Fortune 50 company. A devoted husband and father, JC uses his “free” time to run Personal Finance Utopia where he chronicles his family’s journey to get their personal finances to an ideal place.

Photo credit: Flickr The U.S. Army

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{ 27 comments… read them below or add one }

Income Surfer March 17, 2014 at 3:08 am

Wow JC,
Those were some major challenges. I’m glad you kept your eyes on the price and are plowing ahead. I also bought a house near the top of the market, but fortunately it was just old and not a lemon. We also started saving/investing super early, and thank God because I have been laid off 3 times in 6 years.

Challenges hit us all. The important thing is how we respond
-Bryan

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retirebyforty March 17, 2014 at 10:08 am

Oh wow, 3 layoffs in 6 years is pretty tough too. Good luck!

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Mr. Utopia @ Personal Finance Utopia March 17, 2014 at 10:17 am

Wow, being laid off 3 times in 6 years is rough. Are you in a cyclical industry? It’s good to hear you’ve been as resilient as possible.

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Income Surfer March 17, 2014 at 11:18 am

Haha, yeah real estate development. Then I went to work for a small startup. We’re fine and nearing FI. If you ever needed motivation to save and invest well, it can be found working in real estate development.
-Bryan

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The Stoic March 17, 2014 at 5:05 am

What an amazing story of perseverance. Kudos to you for keeping your head up and moving past those challenges to create a better life.

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Mr. Utopia @ Personal Finance Utopia March 17, 2014 at 10:20 am

Thanks. Sometimes you can see life’s challenges coming and other times they take you by complete surprise. The key is to keep going though especially when it comes to saving for retirement.

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kammi March 17, 2014 at 6:41 am

Great story; I think that when we have financial troubles, it is almost a test of our character and of our goals. If saving is important to a person, or erasing debt, you find a way to make it happen and even though it may take time, you won’t stop. I’m glad you were able to make the sacrifices necessary to get back on track and that it worked out and I”m sure that you are ten times as strong in terms of our character and will having gone through this experience!

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retirebyforty March 17, 2014 at 10:11 am

Obstacles make us stronger as long as we learn from them. I think it’s great JC kept going too. It’s better to have some financial problems when you’re young rather than when you’re older.

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Mr. Utopia @ Personal Finance Utopia March 17, 2014 at 10:26 am

That’s very true, Joe. When you’re younger you’ve got more time to recover and, probably more importantly, you can take the lessons learned with your for the rest of your life.

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SavvyFinancialLatina March 17, 2014 at 6:48 am

Wow those were crazy challenges. Can’t believe seller did not disclose the toxic mold. Makes you want to buy a new house from scratch, huh? I do feel like life is a series of financial setbacks. You work, you pay bills, stuff happens, you pay those bills off, you save a bit.

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Mr. Utopia @ Personal Finance Utopia March 17, 2014 at 10:30 am

I’m not entirely sure the sellers knew about the toxic mold. However, I am certain they knew about the many serious leaks that caused the mold. And they most certainly did not disclose them.

And, actually, the whole experience made me not want to be a another house from scratch. There for a while I was pretty gun shy. But now that quite a few years have passed and my family is growing, I’m over any such hesitation.

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Tyler March 17, 2014 at 6:53 am

Sorry you had to endure all of that early on, but you seem like you came out more motivated. Inspiring for all us working through financial hardships to understand that there is light at the other end of the tunnel. Going to check out your beating debt story now.

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Mr. Utopia @ Personal Finance Utopia March 17, 2014 at 10:38 am

It’s definitely not always motivating when you are in the midst of such crises. Losing my house and getting laid off were actually somewhat de-motivating when it was happening (it can wear you down). On the other hand, fighting to pay off the large school debt was motivating once we decided to tackle the challenge head on. And, yes, there is always a light at the end of the tunnel even if the tunnel seems like it’ll go on forever.

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Roadmap2Retire March 17, 2014 at 7:15 am

Thats quite a story JC. I commend you in your perseverance and continuation on the the road to retireby40. Wishing you the best.

regards

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Mr. Utopia @ Personal Finance Utopia March 17, 2014 at 10:40 am

Thanks! I don’t think we’ll make it to retirement by 40 like Mr. RB40 has, but it’d be nice to retire much sooner than the conventional retirement age of 59.5 or older.

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Kay @ Green Money Stream March 17, 2014 at 7:50 am

Definitely some tough challenges you had to deal with. I love that you were able to re-focus and concentrate on moving forward.

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Mr. Utopia @ Personal Finance Utopia March 17, 2014 at 10:59 am

It can be challenging to refocus afterward especially on tasks like retirement planning since it’s so far down the line. But, if the goal is important to you, refocusing does become a bit easier.

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Andrew@LivingRichCheaply March 17, 2014 at 9:30 am

Wow those are some major setbacks. Sucks about the house…really wanted to hear that the seller was punished for what they did…and it’s horrible that even a thorough inspection didn’t reveal those problems. As for me, I did lose a chunk of change when I decide to invest in stocks right before the internet bubble burst. I also took on a lot of student loans, but have increased my income and stay frugal. Glad to here you have perservered and that you’ve gotten back on track.

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retirebyforty March 17, 2014 at 10:12 am

Ouch. I had a lot of investment in tech stocks before the internet bubble too. It’s still painful to think about. We just have to keep going.

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Mr. Utopia @ Personal Finance Utopia March 17, 2014 at 11:06 am

I wish I could say the sellers faced some sort of retribution, but that didn’t happen. In fact, they cashed in nicely on the sale of the house and used the equity to open their own business: a tattoo parlor! It’s still in business all these years later.

Ouch, investing in the market right before the bubble burst must have been deflating. Hopefully you didn’t lose too much!

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Steve March 17, 2014 at 4:16 pm

I know someone who bought a house with an undisclosed situation (leaking oil tank) which was a six figure situation, and spent another six figures in legal fees. That’s a case where just letting the house get foreclosed isn’t enough, because someone would still have to be on the hook for the environmental cleanup. Too bad you had to walk away from making the sellers pay, but it may have been the right move in the end.

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Tie the Money Knot March 17, 2014 at 9:57 am

This is a great post in terms of the candor and life lessons learned.

Really, the reality is that unforeseen things can happen to any of us, so we should be able to mentally and tactically adjust to changing circumstances. Whether it’s job loss, divorce, health problems, or something else, there is always a chance that something might interrupt our best plans. Your tips on rebounding from setbacks and strongly moving forward are good ones.

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Mr. Utopia @ Personal Finance Utopia March 17, 2014 at 12:17 pm

You summed it up nicely. Financial crises happen to most of us, some worse than others, but the prevailing lesson is to pick yourself up and do your best to move forward. And, when it comes to retirement savings, don’t de-prioritize because it seems like an area that can be neglected for a while.

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krantcents March 17, 2014 at 4:12 pm

We all experienced setbacks, but you can get through anything. Although I reached financial freedom fairly early (38 years old) . It was definitely not a straight line. I had some setbacks, made mistakes etc. I keep at it and and still reached my goal.It is not a failure until you give up!

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No Nonsense Landlord March 18, 2014 at 8:44 pm

Do not let the events of the day, foreclose on the dream of the future. Focus on the end goal, not the day to day bumps along the way.

good luck!

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Little House March 19, 2014 at 7:00 am

Sounds like you were definitely hit with major financial setbacks all at the same time. I’ve had my share of setbacks, but not all at once, more so over time and many of which I created myself. For years we had irregular income that hindered our progress. Finally, after years of hard work, we have one substantial regular income and additional irregular income that helps us meet our financial goals. I’d definitely agree with you and say keep going and refocus, don’t give up!

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DEBt DEBs March 22, 2014 at 11:34 am

Glad to know your story.

It’s humbling to learn what paths people took before to end up in this financial blog hemisphere.

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