Many Americans who have carefully planned for retirement have seen their thorough planning take a hit due to unemployment and the financial crisis of 2008. This article provides five practical ways for mature individuals to rapidly increase their retirement income and manage their retirement savings.
Tip #1: Determine How Much Money Your Need for Retirement and Save More
Surveys indicate that most folks don’t know how much money they will need for retirement. For some their living expenses will decrease. The mortgage will be paid off, they’ll eat out less and transportation costs will be reduced. For other retirees, living expenses will increase due to more world-wide travel, visits to the grandchildren, and medical costs. Bottom line, retirement changes spending patterns so it is best to know how much money you’ll need and start saving more. Mutual of Omaha has a free online calculator that can help you create a retirement budget and determine how much income you’ll need to support the retirement lifestyle you have selected for yourself. The Mutual of Omaha calculator is located at http://www.mutualofomaha.com/tools/calculators/retirement-planning/how-will-retirement-impact-my-living-expenses.php.
Tip #2: Track Expenses and Spend Less
Many people have informal budgets that include just a few important dates and amounts. This casual sort of budgeting isn’t very practical as retirement gets closer. Opportunities can be missed and can set an uncomfortable retirement course that can’t be corrected. Therefore tracking expenses and spending less is a key ingredient to last minute retirement planning. The internet provides several online calculators that will do the math for you. For example, Bankrate (http://www.bankrate.com/calculators/smart-spending/home-budget-plan-calculator.aspx ) offers a free online calculator. Enter the amount of your income and expenses, next click the “view report” button to compare your spending to pre-determined targets. The personalized report shows where you can save more money. Note: The calculator requires a Java-enabled browser for the plug-in.
Tip #3: Consider Downsizing Your Home
Many baby-boomers purchased their homes before the real estate bubble. These folks have often paid-off their mortgages or have equity in their homes. If these baby-boomers don’t have adult children living at home, they can downsize now (and not later). This could lower house payments, reduce real estate taxes and home insurance expenses.
Another alternative is moving to a city with lower housing costs. This approach has some “starting over” risks but can radically lower housing costs. For example, if you live in Virginia, move to Ohio. The average price of a home in Virginia is $240,000 and the average price of a home in Ohio is $99,900. Check out online calculators like Moving.com (www.moving.com ) which compares the average price of a home in one location to another location using zip codes. Moving.com utilizes government databases that are updated annually to determine the average price of homes.
Tip #4: Work Longer
Peer pressure and employer encouragement make retiring early or not working into the retirement years seem like the “right thing to do”. A study T. Rowe Price using Monte Carlo simulations shows how working longer, even if it’s just a few years, can result in big benefits. The T. Row Price example focuses on a woman aged 62 with a fixed salary, full-time job that pays $75,000 per year, and has an IRA of $150,000. Let’s say that she saves $11,250 (around 15 percent of her salary) per year and works until she is 65. In the future, if inflation is 3 percent per year, her investment income will increase by 14 percent per year. And in today’s dollars, her annual retirement income would be 43 percent higher than if she retired at 62.
Tip #5: Delay Collecting Social Security Benefits
For many retirees Social Security benefits are a large percentage of their monthly income. Social Security unlike many other retirement plans, enjoys annual cost of living adjustments to keep up with inflation, is usually exempt from income taxes, and is immune to the volatility of the stock market. Each year you delay claiming Social Security, up until you are 70-years old, the bigger the monthly check will be. There are qualitative and quantitative reasons for postponing Social Security benefits. The qualitative reasons for putting off collecting social security benefits include determining how likely you are to live until your 70s, 80, or 90s. If you are in good health and members of your family are “long-lived” delaying Social Security benefits is definitely for you. If you are married and your wife is younger (and / or has earned less than you) give delaying claiming Social Security benefits serious thought for her sake. (For many widows Social Security is their primary source of income.) For more quantitative details about delaying Social Security benefits take a look at About.com at http://retireplan.about.com/od/socialsecurity/a/delayed_retirem.htm