While people have gotten the message that they need to save for retirement, the gap between knowing and doing remains large. A study by the Economic Policy Institute found that most families, including those close to retirement age, have little or no retirement savings: The median retirement savings of families aged 56 to 61 was $17,000 in 2013, which is nowhere near enough to fund a secure retirement.
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Image source: Economic Policy Institute.
If you have little or no money saved for retirement and you aren't the lucky recipient of a generous company pension, then delaying your retirement is the best course of action. For every year that you continue to put money into savings, rather than take it out, you can substantially improve your financial outlook. You'll also need to start saving immediately and aggressively.
Workers aged 50 or older can make catch-up contributionsto 401(k)s ($6,000 in 2017) and IRAs ($1,000 in 2017). Make every effort to max out those enhanced contribution limits every year. And forget about safe but low-yield investment options like government bonds. If you've waited this long to save, you need to put most if not all of your savings in stocks and cross your fingers that the market stays bullish for the next few years. At least 80% of your retirement savings should be in stocks, with the remainder in bonds or bond funds.
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Slash your expenses
In some cases, you may not have the option of delaying retirement. Maybe your company laid you off at age 64, and you're left with no job prospects. Or maybe your health simply doesn't permit you to hold down a full-time job these days. With little or no savings to fall back on, you'll be dependent on Social Security and whatever other income sources you can drum up. Your income will likely be very small, which means your expenses will need to be equally small.
Downsizing your home is generally the single biggest cut that most retirees can make in their budgets. If you own your house, you could sell it and move to a less expensive home -- a smaller house, an apartment, or even a rented room. If you live in an expensive area, consider relocating to a cheap one (but stick with areas that include plenty of medical care options, as you will need more healthcare as you age). Another option, if you own your house outright, is to get a reverse mortgage. The income might be enough to make up for your lack of savings, and the money will keep coming as long as you continue to live in your house.Of course, a reverse mortgage is not without its risks, including high fees, shrinking equity, and the inability to bequeath your home to your heirs.
Find other income
Sources of income come in two different flavors: short-term and long-term. Short-term sources of income include temporary work and the money you get from selling your possessions. Long-term income sources last indefinitely and include pensions, annuities, the aforementioned reverse mortgages, non-temporary jobs, and most investments. Both sources of income can be useful -- for example, you can draw primarily on long-term income sources for most of the year and pick up some extra short-term income during times when your expenses increase, like when you hit the "donut hole" in your prescription insurance coverage.
Getting a part-time job is probably the most reliable and substantial long-term income source, but jobs for retirees may be hard to find, especially if you have health issues. Monetizing a hobby -- for example, selling craft items on Etsy -- won't bring in as much money as the typical part-time job, but it can certainly help. If you own a home with some extra space, and you're determined not to downsize, then you could consider renting out a room.
Social Security: a special case
Social Security is one guaranteed source of income for retirees. However, if you claim Social Security early, you'll pay a penalty: Your benefits will be permanently reduced. Of course, if you have no other money to live on, you'll have to sign up for your benefits as soon as possible and suck up the penalty. But if you can possibly manage it, wait a few years to file for Social Security. If you claim your Social Security benefits at full retirement age (age 66 or 67, depending on your birth date), you'll get your full benefits; if you can wait longer than that, you get a "retirement credit" of 8% per year until age 70. That may be enough to cover your most pressing expenses and give you a reasonably comfortable retirement.
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