You still have some options to avoiding poverty when you retire if you act now
You're 55+ and You Didn't Save Enough for Retirement
by Paige Estigarribia
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Retirement is getting close and you know that you haven't saved enough. Can you avoid living a poverty stricken retirement? You can, but you need to act now and the choices you make are important.
Many people plan for retirement for years, but what if you're coming upon your retirement, and you haven't been saving? Are there options for people who are 55+ who didn't save enough for retirement? To answer this, we reached out to David N. Waldrop, CFP and owner of the personal finance website The Astute Adviser. Here's what he had to say:
Q: What is the first thing you'd tell someone if they realize they haven't saved enough for retirement?
Mr. Waldrop: It's never too late! That doesn't mean it will be easy. In fact, it will be far from it. There will be some difficult choices to make.
Q: What are some options for someone who hasn't saved up enough?
Mr. Waldrop: There is no magic bullet here. It comes down to income and expenses. You'll need to increase your income without falling prey to the "with just a small investment you could triple your income." You'll likely end up deeper in the hole. You'll need to significantly reduce some of your largest expenses and that requires a willingness to drastically change your lifestyle.
Increasing income: There are ways to make extra money all around us. In fact, there are probably more opportunities than ever before to make money on the side. You could be a driver for Uber or Lyft or even start a side business. Just be careful not to fall victim to people promising to make you rich with "just a small investment." (Visit the TDS library today for ways to make extra cash.)
Reducing expenses: This is where the rubber meets the road. How much are you willing to change your lifestyle? You can downsize your home. If you are fortunate to have equity, you can utilize that equity to fund retirement accounts or increase liquid savings. If you're a renter, you may need to look at some lower rent options.
Q: Do the options change depending on a person's advancing age?
Mr. Waldrop: Age is a huge factor. The more we age, the fewer the options for increasing income or working a side gig. Our physical abilities decline with age, but of course, this depends entirely on one's physical condition. I know plenty of 70 year olds that are in far greater shape than people 25 years younger. In addition, if you're financial situation requires a move, either to a new neighborhood or across the country, it can be more a challenge for some who is well into retirement.
Q: Are there some options that are easier, or may work better, than others?
Mr. Waldrop: Some of these changes will be more difficult for some than others. For the most part, the difficulty resides with the choices involved. For example, if you have younger kids that are still in school, spending decisions are much more difficult than for empty nesters. The spending decisions have a more direct impact on a greater number of people, all of whom have different priorities. If you don't have kids or have kids that have flown the nest, your decisions really impact you and your spouse. A no-brainer for one person could be a gut-wrenching decision for another.
Have you started preparing for retirement?
Our pre-retirement checklist will walk you through the steps you need to take.
Q: Are there some things that people who haven't saved forget about when they begin thinking about retirement income options?
Mr. Waldrop: People often forget:
- that living expenses should decline when you retire so it may not require as much income as originally thought. However, the other side of this is that our life expectancy is much longer than it was 30 years ago. We're living longer, which means we'll need a larger nest egg than years ago. But don't let that scare you. It's not about how much you earn, it's what you keep. Your spending decisions are far and away the most important consideration when making your money last.
- if you are age 50 or older, you are eligible to make catch-up contributions to your retirement accounts. These catch-up amounts for 2016 are as follows:
IRA and Roth IRA - extra $1,000 per year for a total of $6,500
SIMPLE IRA - extra $3,000 per year for a total of $15,500
401(k) and 403(b) - $6,000 per year for a total of $24,000
Reviewed July 2017
David N. Waldrop, CFP® is the owner of Bridgeview Capital Advisors, Inc., an independent investment advisory and financial planning firm located in El Dorado Hills, CA. David has over 15 years of experience in the financial services industry and regularly writes about all things personal finance at The Astute Advisor.
Paige Estigarribia is a writer for The Dollar Stretcher who enjoys writing about food, frugal living, and money-saving tips. Visit Paige on Google+.
Take the Next Step:
- Do you know everything you need to do to be ready for retirement? If not, let our Pre-Retirement Checklist help you out.
- Get more advice for retirement planning for the nearly retired by visiting the Dollar Stretcher Library.
- Here's what you need to know about Baby Boomers changing insurance needs.
- Subscribe to After 50 Finances. You've learned how to work smarter, not harder. This weekly newsletter is dedicated to people just like you. Subscribers get a FREE copy of our After 50 Finances Pre-Retirement Checklist, a list of everything you need to do to be ready for retirement.
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