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What If I Can’t Save Enough to Reach my Retirement Goals?

What If I Can’t Save Enough to Reach my Retirement Goals?

Nov 2020

You just ran the numbers on your retirement and realized that you aren’t going to be able to save enough to make it happen. Don’t panic: There are still things you can do to better your situation, especially if you’re willing to be flexible about your plans and your lifestyle.

The first step is to determine exactly where you are. In retirement, you may have income from a number of sources:

  • Social Security
  • Pensions
  • Investment income
  • An inheritance
  • Earned income from a side hustle

Next, estimate the likely cost of your future monthly expenses: rent or mortgage, utilities, automobile payments and insurance, credit card and loan payments, food, health care (insurance plus out of pocket) and emergency repairs. A good way to capture these categories is to look at your credit card statements and checkbook and list everything you’re spending on now. If you haven’t kept track of this on paper, most online bank and credit card services offer easy access to your transaction history.

Leave out or lower your estimate for anything you won’t spend as much on when you’re retired (your commuting cost should go down, for example). Now, what about potential costs for travel, hobbies and other post-retirement fun? Will you set aside money to give to grandchildren or other relatives in the years ahead?

Once you have your monthly income and expense estimates, compare the two. Are you still coming up short?

If you don’t have enough income to cover your projected expenses, there are some things you can do. But first, there are some things you should definitely NOT do:

  • Panic.
  • Shift into higher-risk investments to try to capture higher returns.
  • Decide your head hurts, avoid thinking about it altogether and assume your health and career will allow you to work long enough to make up the difference.

Here are some things you CAN do:

  • Make catchup contributions to an IRA. The tax code allows workers over 50 to make extra, pre-tax contributions to boost their savings.
  • Re-think your lifestyle. Do you really need to live on a golf course? Maybe you could live near a golf course and be just as happy.
  • Take on a side hustle to create a little extra income. This could be something that’s been a hobby – tying fishing flies, restoring old cars, or knitting comforters. Or work a few hours a week at a friend’s business. Be aware, however, that your earnings may have implications for your taxes and Social Security benefits. Because the tax code governing what portion of benefits can be taxed is complex and subject to change, you should talk to an accountant or financial advisor well versed in that part of the code.
  • Do you have two cars? Maybe one would do. Or perhaps you can do just fine with a used model with a reputation for reliability and longevity.
  • Downsize. Move to a smaller house or condo, and if you’re single, maybe take on a roommate.
  • Consider relocating to a lower-cost area. The cost of living in Knoxville, TN is about 17% below the national average, and there are plenty of other places below the norm: Cheyenne, WY (-8%), Green Bay, WI (-10%) and Sherman, TX (-14%) are just a few.
  • Tap your home equity to pay expenses.
  • Consider a reverse mortgage. However, be aware that the reverse mortgage products offered by various lenders are wildly different in their terms and risks. Look at this very, very carefully before committing.
  • Delay taking Social Security benefits. Waiting until at least your full retirement age boosts your monthly check significantly; your monthly benefit will increase by about 0.67% for each month you delay past your full retirement age, and will add about 8% for each full year you wait until you reach age 70. Your full retirement age depends on your year of birth. Use the calculator on The Social Security Administration website to figure all of this out for your particular situation based on your personal earnings record.

But before you do any of these things, the most important step you can take is to talk to your financial advisor. Because they deal with the intricacies of the tax codes and Social Security every day, they can help you steer clear of landmines and set a course to that bright retirement you’ve been dreaming of.

Sources:

1. https://www.forbes.com/sites/investor/2017/06/09/what-to-do-when-you-havent-saved-enough-for-retirement/#368f06f06e20

2. https://www.aginginplace.org/are-there-taxes-on-social-security-for-seniors/

3. https://www.ssa.gov/planners/retire/1955-delay.html

4. https://www.kiplinger.com/slideshow/retirement/T047-S001-cheapest-places-where-you-ll-want-to-retire-2019/index.html

#save #retirement #future #wellcents

ACR# 336900 NFPR-2020-8


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