11/9/2012 7:45 PM ET|
Retirement planning if you're broke
Many lower- and middle-income Americans are headed for poverty in old age. Here are 5 ways to pull your retirement out of the ditch.
If you are one of the nearly half of Americans who can't afford to retire, here's good news. Even if you're approaching retirement with little or no savings, retirement experts say there's much you still can do to construct a satisfying, if modest, retirement.
But you'll need to act soon and avoid the paralysis that can come from fear and resistance to change. Your reward: a more-comfortable life in years to come.
Americans of all ages are facing a dire retirement savings shortfall, says retirement-security expert Teresa Ghilarducci at the New School of Social Research in New York. She predicts that slightly more than half of middle-income and lower-income Americans will be living at or near the poverty line in old age.
Ghilarducci and colleagues extensively analyzed all the research on retirement readiness and savings in 2010. They concluded that nearly half of Americans ages 44 to 55 were at risk for poverty by age 65.
"There are 39 million of us in that age group," she says. "We have a 49% chance of being poor at 65, which means the risk goes way up when we are 70, 75 or 80." The last time the U.S. saw old-age poverty this severe was before the Great Depression, she says.
In other words, it's not a moment too soon to start thinking realistically. "You're not going to have the traveling-around-the-country-in-a-$100,000-RV-and-golfing kind of retirement, but that doesn't mean you can't still have a good retirement, even if it doesn't look like what you originally envisioned," says MSN Money personal finance columnist Liz Weston.
Here are the five keys to pulling it off:
1. Keep your hands off your Social Security
Claiming Social Security early is a bad idea, and yet it's a popular one. Nearly half of retirees take Social Security benefits when they turn 62. They're probably leaving money on the table that could make a difference to them in 10 or 20 years.
What's the rush? Some people are disabled and have no options. Some are jobless. Others are tired of working. Many are scared because policy discussions about reforming Social Security make them believe -- incorrectly -- that, if they don't grab benefits now, they'll lose out.
That's a mistake, says Steve Vernon, an actuary and expert on retirement preparation who wrote "Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck."
The most drastic proposals for cutting Social Security wouldn't touch anyone now in their 60s, he says. The most aggressive plans would affect people who are now 58 or older. The most liberal plans begin with those who are now 53 or 54.
The choice on when to claim benefits can cost people tens of thousands or even hundreds of thousands of dollars. "It can mean the difference between a near surely successful plan and a failing plan in many, many cases," says Robert W. Stanley, a certified financial planner in Libertyville, Ill. He teaches classes on strategies for claiming Social Security.
Waiting helps you postpone spending the savings you do have. Also, the longer you wait, the bigger your monthly Social Security check eventually will be. Your cost-of-living increases will be bigger, too.
Working even a couple of extra years can make a big difference, Vernon says. If you're 58 or older, you'll receive 25% less every month by taking Social Security at 62 instead of 66. Younger people will lose even more.
On the other hand, you'll earn up to 76% more each month by waiting to claim Social Security at age 70, according to research by the Boston College Center for Retirement Research. You can check the effect effect of your claiming age on your own benefits with the early-or-late calculator from the Social Security Administration.
"This is basically your paycheck for the rest of your life," says Weston.
Even if you've been laid off, you'll come out ahead by waiting and working even part time. You need only to earn as much as Social Security would have paid.
"I would take any job. I'd work at Starbucks. I'd work at Home Depot or do some kind of part-time work. . . . Later, when you retire and get a higher benefit, you'll be really grateful you did," Vernon says.
2. Park your home equity
If you've got home equity, treat it as an old-age emergency fund, Vernon says. Delay tapping it as long as possible. You'll need it in your 80s or 90s for surprises like home repairs, escalating heating fuel costs, medical bills or hiring in-home help.
People in their 60s are taking out reverse mortgages too early and choosing expensive, higher-risk products, the Consumer Financial Protection Bureau warned recently. Watch out for shady sales pitches and high fees that can result in you losing your home.
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I am 53. I have always lived within my means, and feel I will do OK at retirement, even if I have very limited means. For years, financial planners and fund managers have told me "Social Security" would always be there...I have now come to the conclusion, that is total BS. We have allowed the government to confiscate our money, then keep moving it further away from us, with the hope we will die before we consume it all. In my opinion, get whatever you can out of these theives, while you can. They keep telling us to wait....BS. They are broke. You should be able to get what you contributed, when you want...then, when you have no more...you are on your own...that simple. Wonder how that would work out!!!
Where i come from, the word 'retirement' is neither recognized nor considered an option. Us folks waayy under the rader look at everything around us, just shrug, and keep on trudgin' man. We've always been down, that's folks that never owned anything, never qualified for anything, and never even been considered part of anything. This was proven without a doubt during the debates leading up to the presi. election. Don't really matter who's in office, it's just two different gangs who understand the same reality: "the rich get richer, and the poor don't get a__." Always been that way, always will. Retirement? That's a yuppie word. Give me a break.
Like someone up there on this post earlier said, look around americans, we lucky as sh__, when you see what's going on everwhere eles.
Solution: Just work until you don't have to, or can't anymore, and hope that there's some SS benefits left when you stop. .
"Sir", a man said to the Universe, "I exist!"
"I know," replied the Universe, "but that fact does NOT in me create a sense of responsiblity..."
I'm not rich.
I have 65,000 in 401k
I have 135k equity in my 2 family house
I'm 67 years old
I draw 2050/ in social security
I get 1,000/mo from rent in my house, which costs me 2,000/mo.
I make 70k/yr
Wife makes 40k, will get 1450/mo social in 2 years.
We'll have 42k social in 2 years, plus 10k income from 401 w/additions next 2 years.
That's 52k/yr, plus 12,000 in rent, with a monthly car and housing nut of $2600, or 31k/yr.
We'll be OK; not rich, but OK
Author says claiming SocSec at 62 vice 66 can cost ten's of thousands, even 100's of thousands....100's really?? Looking at a person that stands to collect 2K a month at 66 vs 1.5K a month at 62; the difference at age 80 is less than 35K. Granted, I'm not taking into account COLA raises; but I do take into account 4 additional yrs of monthly checks. By the way, that 2K a month is based on a person with an income of over 80K a year; the vast majority of people that rely only on SS do not make that sort of income to begin with. The best advice: live within your means, which only you know. I've found that financial planners are like overweight Dr's telling patients how to lose weight; good advice but no practicality.
The average American today lives a fragile existence, in a struggle for survival that can be ended by missing a few paychecks. The carrot at the end of the stick which was formerly known as "the American dream" has been replaced by a whip that can best be described as the American nightmare of homelessness, and slow, early death. One no longer works to achieve a better life for him/herself and the children. One works to maintain basic shelter from the elements, and you pray that you don't lose it.
"...You're already working much longer, and much harder, to achieve a much lower standard of living than the previous generation, and 25 percent of working Americans can no longer even take a vacation. The Social Security retirement age has been raised to match the life expectancy of American males, so apparently, you're also expected to work until you're dead."
"...And when you do finally get a vacation, they only trip you'll be taking will be in a pine box, and that's only if you're one of the lucky ones. Most of us will only get the state-issued canvas bag that gets tossed into the pit with all the others. If you don't mind the fact that you'll be working until you're dead, you might also want to consider the fact that you'll get nothing for your labor, because this nation's economy is about to crash like a freight train, and when it does, everything you've worked for will vanish."
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