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:
VIDEO ON MSN MONEY
I'm going to wait until 70 and then get subsidized housing. I just got laided off my job of 16 years,cause they moved work to southern states. Again to save money so much for job security!
Then again the goverment takes more come to find out when i cashed in my 401 to have money until the next job, if there is one. Unemployment calls and ask how much my 401k was they wanted to know because it would effect the amount that i'll be getting, in another words less. It was bad enough the goverment to out 7,000 out and only left me with 13,000. Now i got to claim the amount and the outstanding loan on taxes. The thing about the foriegners getting loans for free again were screwed by our goverment. Not to mention take from our ss to use for other things like wars.
where is that sliver lining
I guess the retirement "plan" if you're broke is to depend on others to take care of you.
What most that complain-"I paid in my whole life to SS...."--is that if you see what you "paid in for your whole life" (your portion-not employers)--and divide it by your monthly payment amount.......you get EVERY dollar you "paid in" back in about 24-48 months. FACT--and if you include employer contributions twice that. Stop complaining you get more that you ever "paid in" if you live a few years after you start taking benefits!!!
Look at your statement--get the "estimated taxes paid for SS-YOU paid"--divide it by your "estimated monthly benefit" (which gives you the months) then divide by 12 (which gives you the years. Now realize average male (in US) dies at 79--females 81 1/2. If you are "average" you get MUCH more than you ever paid in! Please quit whining. If you need more, save more!
How about someone who at age 59 - in 2009 - got laid off right after the market took 40% of her 401K? And who's had a struggle finding consistent work since then - some contract work - but - in this economy people over 55 are not getting hired - so - at 62 - there's very little or no 401K left - no job - and the house is under water because the housing market has gone to hell.
I recently got a part time job that pays $8.90 an hour - and I'm damned grateful.
Now, THAT's broke. And I want you to get serious and tell someone what to do with that - because there's a lot of us out there in this situation.
The world will be better of without Capitalistic exploitation and blood sucking. Most of the Capitalistic institutions are controlled by the greedy zionists and their zionist supporters.
There are limits of dissent in a society dedicated to the pursuit of profits...
We may have democracy, or we may have wealth concentrated in the hands of a few, but we can't have both.
I worked at a factory owned by Germans, at coal pits owned by Frenchmen, and at a chemical plant owned by Belgians. There I discovered something about capitalists. They are all alike, whatever the nationality. All they wanted from me was the most work for the least money that kept me alive. So I became a communist.
Live in hope Die in dispear.
Debt and stupidity from age 20 thru 60 have cost you your retirement. Budget and never spend more than you make are sound financial advice.
Work as long as you are physically able.
Stop baby sitting grandkids for FREE
set yourself up to receive as many checks as possible.
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Some workers lose up to a quarter of their paychecks paying off old debt from credit cards, medical bills and student loans, as well as child support.