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.
More retirement articles and advice:
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Your information is misleading. Waiting to retire until you are 70 is not always the best alternative. If you are still working and retire at 66, than each year you work your social security goes up, because you still pay into it. Also if you are working, and save all of your social security each year than you will have a nice nest egg when you finally do want to retire. There are also cost of living increases are also instituted at times with social security. If you wait until you are 70 and die when you are 72 than you wont have thousands of dollars in the bank you wouldn't have otherwise had if you had not taken social security. There are a lot of extenuating circumstances t o whether you retire at 66 or 70, and therefore your statement that if you retire at 70 that it is better, is not a totally accurate statement.
Every go again another expert advise by a financial expert with a conservative salary of perhaps 250 thousand dollars salary. People have LOST their 401K, and any other retirement eggs nest (including myself) by listing to a expert tell me what to do with my money. The government should be responsible for older retired people. Instead of spending money for wars, and helping every country in the world help themselves to the give away that is choking our nation financially. We can not be keepers' of the world, and give every one money that we don't have. That money should be able to help the poor, the older retiree, in this country, SS wont do. It is time to help the older generation. And please don't tell people that you are experts.
Take your SS as soon as you can unless all you live for is having money to spend. I took it
at nearly age 63 and it's been 3 years now and I'm doing fine financially. There is age
discrimination out there..I saw it on my last job. No fun at all. I'd rather live the
frugal lifestyle I'm living now and answer to noone. Why not enjoy yourself and live your
life they way you want in your later years. Do what you want when you want and
don't have to go into the office and put up with all the bureaucracy. I say go for it..no matter what.
I feel so free and in control of my life. (I was debt free and had a small savings acct and a small 401k for emergencies. It can be done!
i agree with this guy on taking bankruptcy.....take it ....I didn't do it some people i know did and are way better off then i am now. Jimmy carter put me in the hurt locker with the grain embargo....
As for taking social insecurity...I am screwed I will probably be working until they plant me in the ground.
If you do the math based on what your benefit is at 62 versus 66 (or older) and how much you will have collected by the time full retirement age comes and you collect your full benefit you will find that the breakeven point is not until sometime in your late 70's or even early 80's. For me it was a no brainer.
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Saving just a single month of expenses may take longer than you think. See how your savings rate affects how quickly you can build a solid emergency fund.
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