Solutions for Retirement Setbacks

Solutions for Retirement Setbacks

You were so close and so on track. Then, the recession happened. Whether you lost your job, or suffered deep losses with your investments or both, there is still time to plan and recover some of your savings, building back up what you worked so hard for.

You may be surprised to find out that the number one way to recover your retirement savings isn’t to plunk your money into more aggressive investments, but instead, to save more — all by watching your spending and making some big budget decisions. Keep track of your spending and bills for a month, staying very aware of what spending you can change and cut and what spending may need a bigger commitment, for example, downsizing your home. Even another $100 a month on top of $400 a month at a 5% return over 10 years can earn you another $16,000. Make that another $250 you find every month and you’ll have nearly another $40,000 after 10 years. Be very realistic about your expenses now and in retirement, and think about how some big changes (such as downsizing) can mean a much more comfortable retirement.

You can also save 25% or more of your Social Security payments if you wait to take your distribution. Locking in Social Security payments at the age of 62 will do just that — you’ll have a monthly check that’s around a quarter smaller than it should or could be if you wait until you’re 67 or older. You can also plan on taking out smaller withdrawals from your retirement savings, such as IRAs. The traditional rule-of-thumb has been to withdraw 4% a year from your retirement as income. But if you can cut expenses you could withdraw 3% annually instead, saving thousands over time and possibly keeping you on track to make your money last.

Working in retirement may not be something you were looking forward to, but for many retirees it can be a second career or a great way to meet new contacts and earn more money for expenses in retirement. Before you retire, first consider holding off on retirement as long as you can, if you have that choice. Every year you earn is another year you can put away money to serve you in retirement. However, if you were or may be forced into retirement, consider a new career or line of work that’s fulfilling as well as financially rewarding. Income in retirement, even part-time income, can be a boon to your bills. But, make sure you know the income limits when you retire for Social Security taxes to start kicking in. If you’re very close to those limits, it may make sense to pull back on earning so have a bigger Social Security check. But, if your earnings are beyond the limits, it can make great financial sense to keep working.

One strategy to beware of is putting your money into more aggressive investments in order to play catch up. The closer you are to retirement, when you need the money, the more dangerous it is to lose money — you feel it harder and have little time to recover. Protect more and more of your money as you get closer to retirement, ratchet up your savings, and your retirement should get right back on track. Consult with an independent tax advisor for more information and to review your own financial situation.

WealthRuler™ is a realistic retirement planning tool that lets you explore how various real world scenarios may impact your assets over time and at retirement.

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