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What Can You Do If You Haven’t Saved Enough For Retirement?

The earlier you can start saving for retirement, the better “…because even small sums can grow staggeringly large with enough decades of compound returns.” However, even the most diligent of savers may find this isn’t enough. If you find yourself in this situation, don’t throw in the towel just yet. You may have more options than you thought!

 

Redefine Retirement

 

Working longer, even just part-time, can significantly boost your retirement savings. It can give you more time to save, including any employer contributions. Your savings will have more time to grow. Plus, the less time spent in retirement, the less chance you have of outliving your nest egg.

 

Delay Social Security

 

According to a recent article from nytimes.com, delaying social security is definitely worth considering. “The benefits of waiting are so great that it may be worth tapping whatever retirement funds you have so you can hold out until your full retirement age.” Of course, you’d want to consult a trusted advisor2 before making such an important decision; but the general rule states that your benefit amount increases by about 7-8% for every year you wait past age 62. “If you’re married, it’s particularly important for the higher earner to put off applying for as long as possible.” This is due to the fact that when one spouse dies, the survivor receives the larger of the two benefit amounts you received as a couple.

 

Access Home Equity

 

Consider tapping your home equity as a way to supplement your retirement income. The article suggests downsizing now, and then investing any extra funds from the sale. The benefit of doing this sooner rather than later, is that it gives your money more time to grow. Another option is to downsize and relocate to somewhere with a lower cost of living. Another option that seems to be gaining more attention in recent years is a reverse mortgage. A Home Equity Conversion Mortgage (HECM), commonly known as a reverse mortgage, is a Federal Housing Administration insured loan. A HECM enables seniors age 62 and older to access a portion of their home’s equity to obtain tax-free2 funds without having to make monthly mortgage payments.3 You can receive the loan proceeds in a lump sum, monthly payments or as a line of credit.

 

Save, Save, Save

 

Anything you can save will help you live a more comfortable retirement. For example, an extra $10,000 in savings could pay for home repairs or an unexpected medical bill. The article also talks about “power saving” as a way for seniors with sufficient income to make their retirement portfolio last longer. This might work, for example, if you’re entering your empty nest years and no longer need to spend money raising kids, by allowing you to save a larger chunk of your income. The article gives the following scenario to illustrate the power of saving.

 

“Let’s say you earn around $45,000. According to Social Security, your benefit at full retirement age will replace roughly 40 percent of what you make, or about $18,000 a year. Saving 20 percent to 30 percent of your income during your last 15 years of work could give you a nest egg big enough to prevent your lifestyle from falling off a cliff in retirement.” This scenario assumes a 6% average annual return, average inflation of 3% and that you’d live on approximately 60-70% of your preretirement income for 20 years.

 

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