July 1, 2014 — Congratulations on getting the kids through college. With today’s out of control tuition costs, that was no easy task. And nice going with the retirement, we hope you get a hard-earned rest from a lifetime of work. The “Broke” part isn’t so good though, so here are 8 steps on how to help fix that.
Unfortunately you are not alone. It is estimated that only about half of baby boomers will be able to maintain their pre-retirement lifestyle. The Employee Benefits Research Institute’s (EBRI.org) 2014 survey reported that only 55% of retirees are very or somewhat confident they will have enough money to live comfortably in retirement. A discomforting 44 percent of retirees report having a problem with their level of debt.
Social Security was never meant to be anything more than a safety net. Yet among elderly Social Security beneficiaries, 22% of married couples and about 47% of unmarried persons rely on Social Security for 90% or more of their income. The average monthly Social Security retirement benefit was $1,294 in 2014. Retirement savings won’t help much either, since only half of Americans over 45 have saved more than $25,000. The result – millions of baby boomers are going to living at or near the poverty level.
Unless you can be content scraping by on bargains and living on a shoestring, you’ve got to take drastic action, right now. Here are 8 steps we recommend (for more tips like these see our more than 100 “coping with retirement” articles in the “Financial” category of the Topretirements.com blog).
8 Steps to Take Right Now
– Postpone the retirement, if you can. The longer you work the more you can save, and the more time you can delay tapping your retirement funds. According to the EBRI, far more workers expect to work in retirement than actually do. The percentage of workers planning to work for pay in retirement now stands at 65 percent, compared with just 27 percent of retirees who report they work for pay in retirement. Whatever the reason for this split, don’t assume that you will be able to find work once you retire.
– Get out of debt. You will have enough trouble surviving financially without having to pay high interest rates on your debt. Talk with a credit counselor, cut your expenses, pay down your debt, take a second job – do whatever you can to eliminate this extra burden now.
– Start saving more than you think you can. Anything saved from this point is much better than nothing. The government will let you put extra $1000 into your IRA ($6500 total) if you are 50 are over, so take advantage. Unfortunately you are going to need a lot of money throughout your retirement, so some sacrifice now might keep you from living in poverty later on.
– Do not take your Social Security benefit until you absolutely have to. We are frankly shocked by how many people unthinkingly sign up for their Social Security benefits at age 62, even people who are still working and don’t need the money. Note that the age 62 benefit is 75% of the Full Retirement Age (FRA) benefit. Sure, it makes sense to do this if you have nothing else to live on and/or you have reason to believe you and your spouse won’t live into at least your late 70s, when the differential for early vs. late claiming equalizes. But by not waiting at least until you reach your FRA (age 66 for baby boomers born before 1955) you cheat yourself out of hundreds of dollars more per month, possibly for decades. If you wait until age 70 to claim your benefit will go up by 8% each year you wait past age 66, a hard to equal return. You also protect your spouse by delaying, because when you die your survivor will get your entire monthly benefit (assuming yours is higher than his/hers).
– Line up a part-time job now. As we mentioned most pre-retirees are overly optimistic about their employment prospects in retirement. That’s why it is important to do some planning before you retire. Do you have a hobby you can turn into a little business? Are you moving to a tourist area where there is a strong labor market? Can you continue to work in your present field on a part-time basis? These are questions worth planning for.
– Downsize your home. Long-time subscribers will know this is one of our pet peeves. But every month you delay moving to a smaller, more affordable and more efficient home eats into your available retirement funds. The money you save on taxes, maintenance, and energy could go into a nicer lifestyle – which sounds like a good trade to us!
– Move to a lower cost environment. If you really are going to have to scrimp in retirement you had better continue on with more drastic measures. A low tax state probably won’t make much difference if your income is very low – except for property tax. Some states, mostly in the south, do have lower property taxes. Our member William also recently reminded us that not just the automobile state registration fees but also the local personal property taxes can be much higher in some states. Also consider your energy bills, transportation, insurance, cost of services, and general cost of living – you can probably find a cheaper state or town than the one you live in now.
– Identify, and cut your expenses today. If you expect to be one of the unlucky baby boomers who looks forward to a diminished lifestyle in retirement, consider this your wake-up call. Take a hard look at your budget by cataloging all of your expenses, then see where you can cut. Developing this budget (including your income sources) should actually be your first step. As the sage of Philadelphia, Benjamin Franklin, said: “A penny save is a penny earned”.
For Further Reading:
5 Ways to Find Second Act Careers
Want to Maximize Your Retirement Dollars – Move to These States
See “Which of These 7 Fantasies Could Wreck Your Retirement”
The Biggest Unexpected Retirement Expense You Never Thought of
Not So Much, A Million Dollars for Retirement
EBRI- Confidence Returns for Those with Retirement Plans
Comments? What do you think the future holds for your retirement, financially speaking. Are you among those who think they will be comfortable in retirement. What strategies do you plan on taking to cope if you find that you will need some extra help? Please share your thoughts in the Comments section below.