Friday, January 8, 2021

Retirement Reset - How to Recover from Financial Disaster

A simpler life might salvage your retirement.
 Millions of Americans have experienced catastrophic financial losses during 2020 and early 2021. Others have managed to survive, but faced many setbacks.  They may have had to take a lower paying job, or they may have had to empty their savings and retirement accounts in order to get through the year.  Others have been weighed down by heavy debts and may be behind in their mortgage or rent payments.  If you are among those who wonder how you can get back on the path to financial recovery and reset your retirement plans, this article contains some practical solutions.  

If you need to drastically revamp your lifestyle, you may also want to read the book, "Minimalist Budget: Simple and Practical Budgeting Strategies to Save Money, Avoid Compulsive Spending, Pay Off Debt, and Simplify Your Life."  (Ad)  This book can be helpful for people of all ages who want to get out of a downward financial spiral. 

The November 2020 AARP Bulletin also offered their own recommendations to help people get back on track.  They divided their recommendations into several areas including cash flow, housing, and retirement savings. Below is a summary of what they suggest.

How to Fix Your Cash Flow Problems

If you are behind in your monthly bills and you have no idea how you are going to pay off your credit cards, you know you are in trouble.  Correcting a cash flow problem means you may have to cut back on your spending and, if possible, increase your income.

Start with a budget.  Write down everything you spend in a month, and decide which items you can live without, either permanently or until you can get your finances back under control.  Small expenses add up.  See how long you can do without cable, perhaps with the help of one or two streaming services.  Shop for the lowest price internet and Wifi.  Turn your thermostat down a few degrees in winter and up a few degrees in summer.  Plan your meals so you only buy what you need at the grocery store.  Look for other ways to economize.

If this project seems overwhelming to you, the National Foundation for Credit Counseling ( and the Financial Counseling Association of America ( can both help you with budgeting, debt negotiation and loan consolidation.  It could be beneficial for you to talk to them to see if there are ways you can negotiate with your credit card companies and other creditors, such as healthcare providers, and reduce your interest rate and/or the balance you owe.  You may also be able to consolidate your debts, so you have a manageable monthly payment.  In a worst case scenario, you may qualify for bankruptcy, which would give you a chance to start over.

Take aggressive steps to get your debt under control.  There are also other steps you can take to manage overwhelming debt, in addition to debt consolidation or bankruptcy. You may be able to transfer your credit card debt to a zero interest card, or take out a lower interest personal loan to pay it off.  Once you do, pay off the amount you owe as quickly as possible, and do not add to your debt until your current debt has been paid off.  This may mean going a year or longer without purchasing new clothes, traveling, or making unnecessary purchases.  Once you have the debt paid off, however, it will be worth it, because you will have your life back on track again.  

Earn extra income.  You may be able to speed up paying off your debts by increasing your income in your spare time.  There are many ways you can do this.  Try Upwork or Fiverr to get freelance gig jobs., Etsy to sell your handmade crafts, dog walking, giving lessons in a skill you have, or signing up to work for a food delivery service.  Apply all the money you earn towards paying off your debts.  You can also raise extra money by selling things you do not need on eBay or Craigslist.  

See if you qualify for any benefits.  Many people qualify for government aid or other local assistance, but do not realize it.  If you are in a dire situation, see if you qualify for SNAP (food stamps), Meals on Wheels, or have a local food bank where you can get a weekly box of food.  Talk to your county Social Services office or check out local government websites to see if you qualify for any kind of assistance. If you are a small business owner, find out if your state or local government is offering grants to help small businesses survive.  Apply for everything you can find.  AARP also has more information about local benefits at

How to Fix Your Housing Problems

For most people, their largest monthly bill is housing.  If this is your situation, and you are having trouble covering all your expenses, you have several options for getting this expense under control.

Should you downsize?  You might be able to decrease the size of your mortgage payments by refinancing.  If this is not an option, the most obvious solution is to move somewhere less expensive. 

If you rent, that could mean finding a cheaper, smaller apartment, even if it requires a couple to live in a one-room studio apartment; or, a larger family might move into a one-bedroom place with the children sleeping in the living room for a year or two.  We all have to do whatever we can to keep a roof over our heads, if at all possible.  You might also contact Social Services to see if your family is eligible for low-income housing or a rent voucher, at least temporarily, to prevent you from becoming homeless.

If you own a home, but can no longer afford it, you may be able to improve your finances by selling your current home and buying one which is much less expensive, with lower payments, taxes and utilities.  You might even consider moving into a condominium.  If you are a senior citizen whose children have grown and left home, downsizing is a particularly good idea, since you may no longer need all the space you have.  In fact, downsizing is quite common at this stage of life and, since you are no longer commuting to a job, you may be able to move to a lower-cost area, such as a rural community or small town.

Can your current home earn money for you?  Another option is to take in a roommate, rent out part of your home (especially if you have a separate living area with its own entrance), or rent out space in your house for storage, such as the basement or garage.  Any arrangement you make should be carefully thought out, with a written agreement regarding the rights and expectations for each person, especially if you will be allowing someone to live with you. Make sure you have a clear understanding regarding visitors, utilities, meals, pets, laundry, cleaning, yard work, and other chores. 

Fixing Retirement Problems

If you have lost your job and used your retirement funds to survive, you may wonder how you will ever recover financially so you can retire someday.  The above recommendations will help you get your living expenses in balance.  However, will they still be in balance when you retire?  Will you be able to live on your projected Social Security benefits, along with whatever is left of your retirement savings?  If not, you may need to take even more drastic measures to increase your secondary income and lower your housing costs.  Making the hard decisions now can make life easier as you age. In addition, do the following:

Add to your retirement savings.  Even if you can only add $25 a month, try your best to rebuild your retirement savings.  Invest it wisely so that it begins to grow.  As you pay off your debt, add at least half of what you are saving in debt payments and add the money to your retirement account.  Time is on your side.  The longer you have, the more your retirement accounts can recover. 

Wait as long as possible to collect Social Security.  If possible, wait until you are 70 to begin to collect your Social Security benefits. If you cannot wait that long, wait as long as you can.  Every month you wait will slightly increase your benefits.  Your benefits will be much higher at age 70 than if you take them early, and they might be enough for you to live on, even without much retirement savings.  According to, "If you claim Social Security at age 62, rather than wait until your full retirement age (FRA), you can expect up to a 30% reduction in monthly benefits. For every year you delay claiming Social Security past your FRA up to age 70, you get an 8% increase in your benefit."  As you can see, waiting as long as you can will give you a significant financial advantage and could almost double your benefits.

You may also be able to earn a little extra money from one of the side jobs mentioned above. Earning a few hundred extra dollars a month from a hobby or part-time job can be the equivalent of the income you would earn off of $50,000 to $100,000 in savings.  (If $100,000 earns 3% or $3,000 a year, that equals $250 a month, which you may be able to earn working a few hours a month on a side gig, thereby replacing the retirement savings you lost.)

Learn how to stretch your wealth to the maximum. A helpful resource is "Ed Slott's Retirement Decision Guide" - the most recent edition edition. (Ad) This inexpensive book is loaded with ideas for getting the most out of whatever assets you have.

One way or another, most people will be able to make the necessary changes to survive financially during retirement. If you are still having difficulty, seek professional advice and financial assistance. The earlier you make the necessary changes, the easier things will be for you in the future.

If you are interested in learning more about financial planning for retirement, where to retire, Social Security, Medicare, common medical issues as you age, and more, use the tabs or pull down menu at the top of the page to find links to hundreds of additional helpful articles.

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