Retirement is near and you're not ready? You're not alone. These 18 tips can help you catch up and guide you to more-comfortable golden years.
By MSN Money staff
Don't despair and don't panic if you're behind on saving for retirement. Many Americans are in the same boat. There are ways to play catch-up if you're getting a late start.
You'll have to spend less and save more. You'll also have to work longer than you had expected.
First of all, you'll want to get an idea of your post-retirement needs. Use MSN Money's Retirement Planner as a place to start. Don't let the result deter you from trying.
Make no mistake: Retirement with $50,000 or even $10,000 in the bank is way better than retiring on Social Security alone.
The basics: Social Security
The next step is to look into Social Security. You'll probably get benefits, but they likely won't fund a comfortable lifestyle. A third of current retirees rely on Social Security for at least 90% of their income, and the average monthly check is $1,007. (See "Could you survive on Social Security?")
- Figure out what your future benefit will be by checking your annual Social Security statement. Anticipate that if you're now in your 50s or younger, the amount will be smaller than the estimate. A reduction in future benefits may be one way Congress tries to keep Social Security solvent beyond 2041. (See "Your free financial report card.")
- Don't be tempted to start collecting at age 62. You'll get a smaller monthly check for life -- 20% to 30% less -- than if you wait until you're fully eligible. For most folks, that's not 65. For anyone born after 1937, retirement age increases by two months a year, until it stabilizes at age 66 for people born between 1943 and 1954. After another gradual increase, it's 67 (at least for now) for anyone born in 1960 or later. See the Social Security Administration's Retirement Planner.
- You'll get a larger Social Security check if you don't start collecting as soon you're eligible. Benefits increase 6% to 8% each year that you wait until age 70.
Just do it -- now
Now that you know what the government will likely kick in, turn your attention to trimming expenses and boosting your savings. Start with "8 money moves you must make at 50."
- Take advantage of benefits available to retirees by exploring senior discounts at AARP.org and other Web sites. In addition, seniors can get help paying for food, utilities and other essentials. Use the Eldercare Locator.
- Maximize your contribution to your employer's tax-deferred retirement plan. Then make the maximum contribution to an individual retirement account. If you're self-employed, consider a Keogh plan in addition to an IRA.
- Federal law allows older workers to play catch-up. Those 50 and older can put an additional $1,000 into an IRA (for a total of $6,000 in 2008) and an extra $5,000 into a 401(k) or similar tax-deferred employer plan (for a total of $20,500 in 2008). (See "Saving strategies for the over-50 crowd.")
- Facing a choice between funding your children's college education and saving for retirement, pick retirement. Your contributions to a tax-deferred savings plan won't be counted as income, and your 401(k) assets are excluded when a college reviews your ability to pay. (See "Balancing kids' college and retirement savings.")
- Be careful adding risk to your investments to make up for lost time financing your retirement, but do talk with a financial adviser about appropriate and possibly aggressive investing. You will invest differently if your retirement date is three years away than if it is 10 years away.
- Don't forget that you're investing not just from now until your retirement date but from now until the end of your life.
Look to your home
There's no place like home to find some financial aid. You have several options here:
- Pay off your mortgage as soon as possible to cut down on bills you'll need to pay in retirement.
- Sell your house and purchase a smaller one, possibly in a less expensive location.
- Tap the equity with a reverse mortgage. The loan isn't repaid until the house is sold. Seek advice from an expert. Reverse mortgages have higher closing costs than regular mortgages, and terms of the loan could force you to give up your home if you leave it for an extended nursing home visit. (See "Reverse mortgages: A wise idea?")
Delay, delay, delay
If you're doing everything you can to save and you still won't have sufficient savings, delay retirement by working full time or part time at your current job, finding a new one or starting your own business. (See "The new retirement: Scale back, work on.") Continuing to work has several benefits:
- You can continue to fund your retirement nest egg and give it more time to grow. Even a few additional years of saving can make a substantial difference if you keep a healthy chunk of your portfolio in stocks. You don't have to start withdrawing from your 401(k) and IRA until you reach 70 1/2. That requirement does not apply to a Roth IRA.
- You'll give yourself time to get used to the retirement lifestyle if you work part time for a while. The sudden switch from full-time work to full-time leisure can be devastating for many retirees. (See "What really matters in retirement.")
Finally, don't be tempted to just put your retirement plan into action, sit back and wait. Periodically review asset allocation, balances and goals to ensure you're staying on track.
Published Aug. 12, 2008