When most people think about retirement planning—or when financial experts give out advice on it—the main focus is on 401K’s, IRA’s and other formal retirement plans. But for many millions of people, there won’t be enough money put aside to afford a full blown retirement. Many Americans will be forced to retire with little savings.
Should you give up on retirement planning if you fall into this group? Absolutely not. There’s plenty you can do, even if you haven’t developed any retirement savings up to this point.
Save and invest all you can
Just because you may not be able to accumulate a retirement savings portfolio of a million dollars or more doesn’t mean you should give up the effort. Even if there’s no way you’ll have a million, having $100,000 will be far, far better than having nothing at all. You may not be able to have the retirement of your dreams, but your life will be more comfortable with money saved than without.
Now is as good a time as any to start contributing to a 401K plan if you have one at work. If you don’t, look into either a traditional or a Roth IRA. You can contribute up to $5,000 per year to an IRA, and a matching amount for your spouse. If you’re 50 or older, the contribution rises to $6,000 each. Even if it isn’t fully tax deductible it’s well worth doing.
If for example you and your spouse are 40 years old and don’t have retirement plans through work, contributing $10,000 each year until you’re 65 will give you $250,000 plus investment income. Not a multi-million dollar portfolio by any stretch, but not a bad nest egg either.
There’s nothing magic about 65 as a retirement age, you can do it when ever you’re ready to. By delaying retirement by to age 70 you can:
- Give yourself an extra five years to fund your retirement savings.
- Increase your monthly Social Security benefit by up to 8% per year for each year you delay benefits past your normal retirement age. If your normal retirement age is 67 (you were born after 1960), you can increase the payment by 24%. More on deciding when to draw Social Security.
- Reduce the number of years you’ll need to draw down retirement assets.
The delay in retirement by just a few years may be all you need to enable you to eventually have a full retirement.
Maximize your health
There are at least two ways that maximizing your health can benefit you in your retirement years. First, the healthier you are, the less reliant you’ll be on costly medical therapies. Healthcare costs tend to increase with age, and if you can minimize this you’ll also lower a major expense.
Second, the healthier you are the better you’ll be able to provide at least some of your income by working. You won’t be able to do that if your health doesn’t hold up.
Move to where life is cheaper
Retiring in high cost areas is difficult if you have a lot of money. It can be impossible if you don’t. If you have a relatively small retirement portfolio, check out relocating to regions where the cost of living is lower. It’s possible to retire with little savings by moving to areas where the cost of living is less than half what it is in pricier locations.
Another trend that’s developing is retirees moving into recreation vehicles and boats. Not only is that living arrangement less expensive than maintaining a home, but it also provides mobility to enable lower cost travel.
Get out of debt
An unfortunate new trend is developing in retirement. People are carrying debt into their golden years. Apparently paying off the mortgage is no longer the retirement priority it used to be, and people are carrying large ones into their 60’s and 70’s. Car loans and credit card debt are now common as well.
Part of the problem is lifestyle. If you use debt throughout your working years, you’ll be less hesitant to carry it into your retirement. That’s a bad decision, however. Debt raises your cost of living and that’s the last thing you need to do if you won’t have a fat retirement portfolio to rely on.
In general, paying off debt can be a more effective form of retirement planning since the payment on a debt is usually far higher than the income that can be earned on an investment of the same size. This is especially true in a time of record low interest in fixed income investments. So if you can’t save and invest money for retirement, at least pay off any debt you have.
Find work you love
If you really like the work you do you probably won’t even want to retire. This doesn’t mean that you can’t quit your job but rather that you find some form of paid work that you really love doing. You won’t need to retire from that kind of work.
It can be even better if the work is flexible and/or fairly informal. This could mean having your own business, the kind that you can do from home and at your own pace. Having no boss and no commute might enable you to find that work is actually enjoyable. If it is, you may be able to do it for as long as you live.
Even if you can’t afford a full retirement, you may come to find that you don’t need to have it anyway. Think of retirement more as a better way to live than as the ultimate attainment of complete financial freedom. If you can do that, you can build a comfortable life around it, even if that life doesn’t involve beaches, golf courses and world travel.