Americans Outliving Retirement Savings

Wednesday, 28 July 2010 18:40

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The Employee Benefit Research Institute found that ½ of seniors saving for retirement are likely to outlive their savings, and not have enough to cover living expenses.  Now, those individuals nearing retirement, or planning for it, need to create and utilize more aggressive savings plans to close the gap.  Pension plans and Social Security are no longer reliable savings plans, so here are some strategies for making the most of retirement:

    1.    Budget for Reality
    •    Do your research, and don’t simply listen to friends and family.  Understand what will happen with inflation, taxes, and living costs, and don’t underestimate how much money you will need when you stop working. 


    2.    Automate and Prioritize Savings
    •    Don’t put things off—prioritize savings.  For example, interest built up in your twenties can be worth more than investments in your forties.  Automate your savings, so you don’t have a choice, and put money toward retirement before funding college savings.  Loans are out there for college, but not retirement. 


    3.    Eliminate Debt
    •    Pay off outstanding debt before retirement and you’ll create a more fixed budget, since you won’t need to take into account interest payments and principal.  


    4.    Diversify Savings
    •    Know your options and choose those that suit your personal needs.   


    5.    Play Catch Up
    •    Older workers have tax laws designed to help save more money, and they should be utilized.  Workers who turn 50 in the calendar year and have met their retirement contribution maximum can make catch up contributions. 


    6.    Social Security Buy Back
    •    If you’re already retired or collecting Social Security, you can cancel your current benefit level and re-apply for greater benefits at a higher age.  Benefits are calculated based on age, so the older you begin, the higher your monthly payout. 


    7.    Leverage Your Assets
    •    If you don’t have the cash you’d like to possess when you retire, you can use your assets to enjoy retirement comfortably.  You can sell your life insurance policy in a life settlement, which can return up to 300% of the cash surrender value.  You can also invest in a reverse mortgage to receive a lump sum payment in return for equity in your home.  


    8.    Consider a Second Career
    •    Second careers can be personally and financially rewarding.  You can match demands and hours to supplement your retirement income, and end up with more free time and less financial stress.