How to Fix Your Retirement Savings Shortfall

Millions of Americans are not prepared to retire.  In fact, about one out of four Baby Boomers who are approaching retirement have saved absolutely nothing towards their retirement.  Millions more have saved less than $50,000 ... which will not last very long, unless they quickly make some drastic changes in their lifestyle.

However, for those Boomers who are still five or ten years away from retirement, it is not too late to take the necessary steps to have a comfortable retirement.  Below are some of the suggestions the experts make:

Start Saving the Maximum in Your 401(k) or IRA

If you are not maxing out your retirement accounts, you are not taking advantage of the tax savings these accounts can give you, nor are you using your last few working years to fully prepare for retirement.  Workers over the age of 50 are allowed to put $24,000 a year into a 401(k) and $6,500 a year into an IRA.  You may feel that putting $500 to $2500 a month into your retirement accounts is impossible, because your current lifestyle costs too much to support.  If this is the case, now is the time to dramatically and ruthlessly reduce your lifestyle.  If you can barely support your lifestyle while you are still working, it will become even more difficult for you to maintain your lifestyle after you stop working ... especially if you do not have much money saved.

There is no question that it will take hard work and discipline to start saving that much money.  However, you will appreciate the long-term benefits of having this much money saved when you are in your 80's and 90's.  Now is the time to make the necessary adjustments to your cost-of-living so that you start putting as much money as possible into your retirement accounts. 

Use the Equity in Your Home to Finance Your Retirement

If you own your home and have lived in it for a long time, you may have tens of thousands or even hundreds of thousands of dollars in home equity.  This money can be used to finance your retirement, if you are smart about how you use it.  Some people have found they do well if they sell their current home and use part of the equity to purchase a less expensive home, either in the same community or in a less expensive area.  Afterwards, they can invest the remaining equity in dividend paying stocks, an annuity, tax free bonds, or other investments that will provide them with a reliable source of retirement income.  The combination of lower expenses and increased income can help many people salvage their retirement.

Another way to use the equity in your home is by taking out a reverse mortgage.  However, there are a number of risks involved with this plan.  If people initiate a reverse mortgage when they are still in their 60's or early 70's, they may end up spending all the proceeds from the loan far too quickly ... leaving themselves destitute when they are in their 80's or 90's.  It is far wiser to wait to get a reverse mortgage until you are older and fairly confident that the proceeds will last you the rest of your life ... and the life of your spouse.  

Postpone Collecting Social Security Until Age 70

People who wait until age 70 to collect their Social Security benefits can significantly increase their monthly income compared to those to begin collecting between the ages of 62 and 67.  Your benefits increase by 8% for every year you wait after your full retirement age.   This means you will get 32% more than you would have at age 66, and 76% more than you would have at age 62.   By waiting, a retirement pension that might have been only $1500 a month at age 66 can be increased to almost $2000 a month at age 70.  That difference provides as much additional income as $100,000 in savings invested at 6% interest.

Continue Working After Retirement

There are significant advantages to working as long as you can in your 60's and, possibly, your 70's.  Even if you switch from working full-time to part-time, any money you earn equates to less money you will have to take out of your retirement savings.  This, in turn, will give you the time you need to continue to grow your nest egg.  By the time you are no longer able to work, your savings may have grown enough to provide you with a satisfactory lifestyle for the remainder of your life.

Many people also use these years to work part-time and enjoy encore careers that are fun ... as consultants, substitute teachers, writers, artists, photographers or employees of non-profits.  They keep busy, stimulate their brains, bring joy to their lives, increase their socialization and earn extra retirement income.  What better way to make your retirement savings last?

Bottom line:  It is never too late to do something about your retirement savings situation.  You just have to be willing to face reality and make the necessary changes.  You can do it!

Resources:

http://finance.yahoo.com/news/last-minute-ways-improve-retirement-131813087.html;_ylt=AwrBEiJXswhViF8AjtyTmYlQ

http://www.moneytalksnews.com/ask-stacy-why-do-you-keep-telling-people-to-wait-until-70-to-collect-social-security/

http://money.usnews.com/money/personal-finance/articles/2014/11/13/youre-at-retirement-age-but-havent-saved-enough-what-now

http://www.huffingtonpost.com/2013/05/18/retirement-savings_n_3288274.html

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