8/20/2012 2:15 PM ET|
Money in your 60s: 12 steps to take
This is your last chance to get retirement-ready. Here's the game plan to make sure your numbers add up before you call it quits at work.
Traditionally, this decade in your life would be all about retirement.
And traditionally, you'd do it sooner rather than later. In recent years, half of all retirees left the work force by age 62.
Ongoing turmoil in the stock markets and serious declines in home equity have changed the equation. Only 13% of workers now feel very confident they'll have enough money for a comfortable retirement, according to a recent survey by the Employee Benefit Research Institute. Those already in retirement are worried, too: Just 24% believe they'll have enough money, down from 41% in 2007.
Today's 60-somethings face other challenges. Compared with their parents, they are much less likely to have guaranteed retirement checks through defined-benefit plans, which means their own savings are critical to funding retirement. Yet the median amount saved in 401k's, IRAs and other retirement accounts in this age group was just $100,000 in 2007, according to the Federal Reserve's most recent Survey of Consumer Finances -- and that was before the massive damage the stock market drop of 2008 did to retiree nest eggs.
Today's 60-somethings also are more likely to be carrying debt. Three-quarters of people in their 60s owed money, with a median debt of $50,000, the survey found. Forty-five percent carried balances on credit cards, and the median amount owed was $4,000, more than any other age group.
Clearly, today's near retirees have the wind in their faces. Here's your game plan for getting your finances back on track.
1. Zero in on a retirement date
To know if you can comfortably retire, you'll need to have a target retirement date, because how much money you'll need and how much you'll get (from Social Security and other options) depends on this. But you need to stay flexible, in case the day you'd like to quit working -- or phase into part-time work -- turns out to be too early.
Working even a year or two extra can boost your nest egg and increase your retirement income enormously. But there's also no point in hanging around longer than you have to.
2. Figure out where you're going to live
Will you stay put in a paid-off home, or will you still have a mortgage? Will you move to a cheaper area or downsize to a smaller place? Or will your move be lateral, to an equally expensive (if lower-maintenance) condo or retiree village?
Where you spend your retirement will have a huge effect on how much income you'll need. If your retirement plan doesn't pencil out one way, you may need to consider other alternatives. Although more than 80% of retirees "age in place" -- living in the same house in which they retired -- moving to a cheaper area or downsizing to a smaller house can free up home equity for investments or income.
Thinking about tapping your equity through a reverse mortgage? These mortgages, which give you a lump sum, a line of credit or a stream of monthly checks, don't have to be paid back until you die, sell the house or move out permanently. But the amount you get is inversely proportionate to your age: The younger you are, the less you get. That's why the typical age for getting a reverse mortgage is about 75 and why real-estate expert Tom Kelly doesn't usually recommend them when you're in your 60s unless you have no other choice.
"I believe people in their 60s . . . simply don't qualify for enough cash under the present (reverse mortgage) programs," said Kelly, the author of "The New Reverse Mortgage Formula."
Then again, a reverse mortgage may be the best of bad options if you still have equity, can no longer work and your retirement income isn't enough to pay the bills.
"There's a needs-based group. Some folks have no other option to pay for meals and meds (or) a new roof," Kelly said. "This group doesn't really care how much it costs to get the (reverse mortgage); they simply need it now."
3. Consider long-term-care insurance
There is no expert consensus on when you should buy this coverage, if you buy it at all. Consumer Reports doesn't recommend the coverage before age 65, but adviser Robert Pagliarini, a certified financial planner and author of the book "The Six-Day Financial Makeover," prefers his clients buy a policy before they turn 60.
"Unfortunately, the longer you postpone the decision, the greater your chances of suffering an illness or developing a condition that will disqualify you from coverage or cause the premiums to be too expensive," Pagliarini said. In the 60-to-65 age range, "rates will not necessarily be attractive, but they should still be reasonable." In the 65-to-70 age range, "premiums start going up dramatically." Do some serious research before you buy: Look for companies with sound financial ratings from TheStreet.com, Fitch, A.M. Best or Standard & Poor's and review the insurers' complaint records with your state insurance regulator.
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