How to Save More for Retirement -- Without Working Longer
According to Fidelity Investments, a 65-year-old American couple will need almost $250,000 in retirement cash -- just to cover medical expenses.
Yet 20-percent of retirement-aged Americans have no savings at all.
Do I have your attention? Good. Because here's another relevant stat for those who think they'll just work until they drop.
According to the Employee Benefit Research Institute, half of all retirees had to leave the workforce unexpectedly. We're talking about health issues and layoffs.
Add it up, and it doesn't paint a rosy picture. Yet there is hope for even the most savings-challenged among us. If you adopt some smart tactics today, you can save more for retirement. And you won't have to rely on a decade-plus of golden years labor to do so.
Let's review a few of the most high-impact steps you can take today to secure your future.
Delay your Social Security benefits.
Putting off claiming your benefits can have a major impact on your finances. By delaying until 70, you receive an extra eight-percent for every year past your full retirement age (around 65). That's a better return than you'll find almost anywhere. Future cost of living increases are also tethered to this higher figure.
Of course, there's a catch. If you have reason to believe you won't live past 80, you should collect early. The actuarial tables tell us anyone who fails to see their mid-80s won't benefit by delaying. Collecting early also allows you to take additional investment risk and avoid depleting your existing assets.
Still, those who meet the average life span are better served by a delay. Yet despite these favorable numbers, only around two-percent of us wait until 70.
One smart tactic: If you're married, claim the lower-earning spouse's benefits early. Then switch to the higher-earning spouse once those benefits reach maturity.
Consider a reverse mortgage.
Reverse mortgages once had a somewhat sketchy reputation. They were viewed as a measure to be considered in dire financial straits. Yet with Americans saving so little, the practice has become entirely mainstream.
One area where Americans have done comparatively well is building home equity. Reverse mortgages allow homeowners to tap into their equity, then pay the money back upon their death or the sale of their home. You can pay off a house, pay off health care expenses and provide yourself with a nice income stream. Reverse mortgages are also typically government-backed and tax free.
There are factors to consider. You need to be at least 62, with considerable equity. You should also be aware of the complexity of the process. There are several types of reverse mortgages offered by a variety of agencies and private insurers. They have differing terms and conditions.
Estate depletion is another factor. Yet in certain situations, a reverse mortgage can be a retirement lifeline.
Once you're retired you must adapt to life without an income stream. Purchasing an annuity is a smart way to replace, at least in part, that predictable income. While annuities come in many forms, the premise is simple. You provide an insurer a lump sum for regular future payouts. It's kind of like winning the lottery -- except you pay yourself the prize.
Our current low interest rate climate has made fixed annuities less attractive. Yet interest rates will inevitably climb. That process could begin as early as this fall, as the Fed is preparing for the first rate hike in years.
Consider lifestyle changes.
Altering your lifestyle is one of the best things you can do to stretch your assets. You can do it immediately and it's accessible to anyone. Cut down on all unnecessary expenses. Aggressively downsize. You might want to consider selling your home and relocating to a cheaper area. Moving to another country, in particular, can make a massive difference in how long your nest egg lasts.
Priority Action: The Prescription for Securing Your Retirement Without Working Longer
Most retirement statistics are grim. Yet the basic formula for a successful post-work life remains the same -- work hard and invest wisely. If you can master that, you're in prime position to succeed.
Let's review a few of the best tactics you can employ to help maximize your odds.
- If possible, delay your Social Security benefits. Before you can make this decision, you need to take a critical look at your own health and your family history of longevity. Are you in poor shape? Does chronic heart disease run in your family? Then perhaps delaying Social Security isn't the right choice. After all -- nobody wants to leave money on the table. You should also crunch your numbers -- calculate the difference between what you'd earn by taking benefits in year one, and what'd you'd earn by qualifying for the annual eight-percent escalator. You're likely to be surprised by the difference.
- Investigate helpful tools such as reverse mortgages and annuities. Take a few hours to go online and explore reverse mortgages and the wide variety of annuity options available. If you're interested in moving ahead, contact your financial adviser or insurance company for guidance. They can help find a product that is best suited for your personal financial and lifestyle needs.
- Commit to budget-transforming lifestyle changes. Don't opt for the luxury car. Shy away from expensive consumer goods. Don't be afraid to move to a friendlier location if that's what it takes. The U.S. dollar is extremely strong right now. Compile a list of places you've always loved or wanted to visit, and research housing, food and transportation costs. The kind of retirement that seems unaffordable here might be well within reach in another country.
With some smart planning now, you won't have to worry about reporting to work when you'd rather be enjoying the fruits of retirement.