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Have You Blown Your Chance for Retirement?

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I've cut our family budget and added more than $10,000 per year to our bottom line with a few simple changes.

Drinking tropical drinks on a beach somewhere might be your idea of an ideal retirement, but have you saved enough to make it happen?

Drinking tropical drinks on a beach somewhere might be your idea of an ideal retirement, but have you saved enough to make it happen?

What Will Your Retirement Look Like?

If you're wondering if you've blown your chances to be able to retire by not saving enough over your lifetime, you're not alone. There may be some ways that you can steer your ship back on course and save enough money so that you may be able to quit working. Take a look around at the landmarks.

Do an Inventory

If you're nearing that age and are wondering when you'll be able to retire and how, then the first step you should take is to do a complete inventory of your own financial situation. What debts do you owe, and for how much longer? What obligations will you have in the future, such as taking care of older parents? Do you know what your total net worth is at present? How much Social Security will you receive when you retire? Where do you want to live when you retire, and is reasonable to do so? These are all questions that are better asked sooner rather than later.

Begin by taking out a piece of paper and drawing a line down the middle of it. On one side list all of your assets, including the amount of equity that you have in your home, (fair value minus amount owed on your mortgage,) plus the value of all of your other investments and bank accounts. On the other side, list all of the balances that you owe, such as the remainder of your mortgage, credit card balance, car loan, etc. The difference between the amounts in those columns will be your financial net worth.

Find Out What You Will Get From Social Security

Your next step should be to create an account at "my Social Security" which you can find at www.ssa.gov.

Once you've filled out all of the required information, you should receive a postcard in a few days with your pin number, which you'll need for full access to your account. Each person has their own account, so if you're married your spouse will need to create their own separate account. If you've already worked the required 40 credits to become eligible for the system there will be an estimate of your future Social Security benefit amount. In 2021 the SSA required you to earn $1,470 in earnings to accumulate one credit.

Your "my Social Security" account will give you your estimated benefit at full retirement age, which is 67 for those born after 1960 and 66 for those born before that date. This estimate is based on the highest-earning 35 years of your working life. If you only worked for 25 years, then ten of those years would count as zeros, which is not an ideal situation.

The best way that you can prepare for retirement is to keep working until you have reached 35 years while earning as much as you possibly can. You may already be past that stage in your life, but all is not lost. There are ways that you can still reach your goal.

How to Increase Your Social Security Payments

You can increase the amount of your monthly Social Security check by holding off on when you begin to take payments. You may begin taking early Social Security at age 62, yet your monthly payout will be 25 to 30 percent less than if you'd waited until full retirement age of 66 or 67, depending on what year you were born. It's almost always a bad idea to begin drawing early Social Security payments. If you begin draw your benefits early, you could end up getting a much smaller check. Also, if you can wait until 70, you can get an extra 8% per year for each year that you wait.

Not everyone is able to wait, and for those who can't because of their employment situation or a health condition, there are still some options available. It may make more financial sense for some people to use the equity that they've accumulated in their home for example, and use it to get by until retirement age, by selling the property or taking out a reverse mortgage. Those needing income early may be able to draw from their personal or employer sponsored retirement plans before beginning to take Social Security benefits. In either case, one should consult with a Certified Financial Planner (CFP), for advice before doing so.

Maximize Your IRA Contributions

If you're nearing retirement age you should be saving as much as you can in your 401-K or similar employer sponsored plan, and if eligible, also in your personal IRA or Individual Retirement Account. While a traditional IRA offers tax savings in the year that you contribute, a Roth IRA offers some very nice tax advantages after retirement. For example, once you've invested money into a Roth IRA by purchasing shares of stocks, mutual funds, or bonds for example, you're exempt from paying any further taxes on the earnings that these investments generate, provided you don't withdraw your funds early. While you still pay tax on the "seeds" or the money you put in the account, you won't pay any taxes on the "harvest" that this "money tree" produces.

Adjust Your Expectations: Downsizing or Relocating

To retire comfortably you'll typically need as much as 80% of your current salary to cover monthly expenses. Also, you may have added expenses in retirement, such as Medicare insurance premiums and out of pocket medical costs. If your home is paid for, and if you can do so, downsizing may be one good way to afford retirement if you haven't saved enough elsewhere.

Another option may be to both downsize and relocate at the same time. Each year many Americans retire as expats and choose to live in places such as Panama, Costa Rica or Mexico. In many cases these retirees can live on much less money than they could have if they'd remained in the US.

In order to reside permanently in some countries as a retiree, you may be required to prove that you have a consistent monthly income. For example, in Costa Rica, "pensionados" or retirees must be able to show that they receive at least $1,000 a month in income, and also must convert this into local currency each month. With rents as low as $500 per month in some areas of the country, this may almost be enough to live on, if you're very frugal in your spending.

If you're considering retiring to a foreign country, make sure that you know the risks and the extra expenses that you may need to pay for, such as for that country's medical insurance, flights back to the US to see family, etc. There are many online forums and videos where expats who've dealt with these issues share their knowledge with those who're considering such a move.

It may turn out that you decide to downsize and relocate to another part of your home state, or to another state, instead of leaving the US. If you home is worth $400,000 in Dallas, Texas, for example, and you can find a similar, perhaps smaller home comparable to it for half the cost in a small town located an hour away, then such a scenario would allow you to downsize and then invest the difference in an annuity, rental property or other investment that produces monthly income.

Side Jobs for Retirees

If you're still able to work, you may find that working a side job is not only financially rewarding but mentally stimulating as well. I personally know many retirees who've gone back into some kind of work after being "bored" for a few months. Just because you choose to draw Social Security doesn't mean you can't still work. If you're reaching full retirement age in 2021 for example, you may be able to make up to $50,521 per year in extra income without losing any Social Security Benefits.*

A side job, such as driving for Uber or Lyft, or doing shopping part time for Favor perhaps, may be able to give you the extra income to retire and live a comfortable lifestyle. Sites such as TaskRabbit help those with handyman skills find work in their area. Even renting out part of your garage or property to people who need to store things, though a site such as Stashbee for example, can be another source of extra retirement income. Also, AARP offers its members a list of employment resources and job postings in certain areas.

If you do need to find a side job to supplement your retirement, consider applying for jobs that you already have some prior experience with, such as part time work in the same field that you retired from. Temporary work, such as substitute teaching, may help help fill in the gaps and provide enough extra income for you to retire early, provided that you have another steady source of income to pay your monthly bills with.

For more ideas on how to retire with more money in your pocket, consider reading some of the excellent books on the subject from financial authors such as Dave Ramsey and Suze Orman. I've read several of these author's books and have applied some of their advice in my own retirement planning efforts, even though I began doing so a bit late in the game.

*This article was based on information about Social Security that was current as of 12/27/2020. Be sure to check ssa.gov for current information.

This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.

© 2020 Nolen Hart

Comments

Peggy Woods from Houston, Texas on December 29, 2020:

You have given a number of good suggestions in your article. With the pandemic wiping out many people's jobs and savings, many will have to give some serious consideration to how they will finance their retirement years ahead.

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