A recent survey showed that the average American in their 50’s thought that they would need approximately $800,000 to fund their retirement. This same group, only a few years from the age when most people think about retiring, had accumulated an average of $300,000 in assets. The survey also revealed that most people thought they could withdraw about 9% of their assets each year to supplement their social security and that a withdrawal rate that high would carry them through their retirement. The truth is that one of the biggest risks you have entering retirement is outliving your money, and a withdrawal rate of between 4% and 5% will give you a much better shot at making your money last as long as you do.
We often underestimate our needs when it comes to retirement because it’s difficult to imagine 30 years of no income aside from Social Security. Life expectancies are on the rise and funding 10, 15, or even 20 years of your life after your career is over is not going to be enough money in many cases. For people within ten years of retirement who are just starting to realize that they have a long way to go to prepare financially for their golden years, here are a few tips.
- Save Like You’ve Never Saved Before: If your retirement savings are not going to be enough, the best thing you can do is to begin saving now. This means that you may need to sacrifice things like travel, upgrades to your home, or funding your children’s education in order to take care of your own future needs. The best place to save is in your 401K if possible, especially if there is a match. This year, the IRS allows individuals to contribute up to $16,500 each year, and that’s before the company match. Even within a few years of retirement, the time value of money can be more powerful if you start saving earlier. If you invest these funds wisely and markets cooperate, you can build a small nest egg even in just a three or four year period.
- Adjust Your Target Retirement Date: This is a step that no one wants to think about, but the reality is that you greatly enhance your chances of financially surviving retirement if you’re willing to work a few extra years. There are a few key benefits to a decision like this. First, the income you continue to receive will allow your retirement savings to continue to grow untouched. Second, your retirement savings will continue to have an opportunity to grow. Finally, the longer you can delay receiving Social Security payments, the bigger those payments will be.
- Be Ready To Tap Into Your Biggest Asset: For most people nearing retirement, their most valuable asset is their home. As such, that home might be your best chance of having the retirement income you need. You may need to tap into your home equity for income, either through a traditional home equity loan or line of poor credit history, or through a reverse mortgage that can provide monthly income and allow you to stay in your home. Some people also consider downsizing, selling their home to move into something smaller and living on the difference in monthly housing costs. Working a few more years before downsizing will also allow home prices to recover after falling in most parts of the country over the past few years.
