The following post is from FMF contributor Eric Olesen.
According to a survey done in 2012 by the EBRI (Employee Benefit Research Institute), most of the Americans approaching retirement age don’t have the savings that would allow them to do just that.
Only 22% of working people aged 55 or older reported having saved as much as $250,000, and this isn’t thought to be enough for a traditional retirement. Worse than that, 31% of people in the same age group have reported they have only saved $100,000 or less! (All statistics are from the same survey.)
If you use the 4% rule, (what financial planners tend to recommend) a savings for retirement of $250,000 will give you an income in retirement of about $10,000 per year. Even when you add in benefits expected from Social Security, this will still not be enough for most retirees to live on comfortably.
Some people though, somehow manage to save enough to retire early! Wouldn’t that be great? However, this doesn’t happen with most of us. So, aside from eating nothing but Ramen and living in a tent throughout your retirement, what can you do? That is what we are going to discuss today.
If you are already planning your retirement party when you realize that you won’t be bringing enough in with your retirement fund to live on, you might want to check out some of the statistics about reverse mortgages. Reverse mortgages might seem to be a bit confusing at first. But they really aren’t. They allow you to borrow against the equity you have built up in your home. To qualify, you need to own your home, or just owe a little on it, be 62 or older, and live in the home. You can get the mortgage in the form of a line of credit, a lump sum, or in monthly payments. You will still be responsible for insurance, taxes, and upkeep of the home. The mortgage is to be paid back when you either move out of the house or die. Because of this needing to be repaid upon your death, this is something that definitely needs to be discussed with your family members so there are no unpleasant surprises during an already trying time.
Do What You Love
None of us wants to have to get another job after we retire just to make ends meet. However, there are doing the things you love. For example, if you love dogs, you might want to become a dog sitter. If your hobby is fixing or working on engines and motorcycles, you might want to consider turning your garage into a motorcycle repair shop. Is it really working if you love what you do?
Maximize Social Security
People might have the opinion that the largest question in regards to Social Security might be whether they should start drawing it at 62 or if they would be better off waiting a few more years. However, if you are married and looking at Social Security, there are many different strategies for how to claim it. You need to carefully look at each one of these strategies to determine which will be best for you and your family. A financial planner can help you do this.
Drop the Debt
During the last 5 or 10 years of your working life, even if you are able to retire early, you need to focus on paying off your debt. This is where a lot of post-retirement expenses go. If you pay this debt off before you retire, that means that you will have that much more money each month to live on.
Keep On Keeping On
If you enjoy being out of the house and working, you might want to consider taking on a part time job to augment your retirement benefits. Aside from that, many people find that they are so used to working that not working leaves them with entirely too much time on their hands. Getting a part time job can also remedy that. However, if you feel like this might be your reaction to retirement, you might just make the decision to continue working for a few more years. During those extra working years, try to save more while spending less. You might be surprised at how much of a difference it can make.