Erik Carter, Contributor
April 11, 2023
One of the most common bits of advice from financial professionals is to start saving as early as you can. That’s absolutely true. But what if you didn’t and are now approaching retirement with little or nothing in savings?
The reality is that it’s not likely to be easy. You’re going to need to find ways to save more now, increase your income in retirement, and/or reduce your retirement expenses. Here are some ideas to consider:
1) Go through your expenses and look for ways to cut back. The goal is to free up as much money as you can to save for retirement (see #2 below) or pay down debt (see #3 below) and to reduce your expenses in retirement as well so you can eventually live on less income. Look at your last 3 months of credit card and bank statements and for each expense, ask yourself if it’s something you really need and if so, if there’s a way to get the same result in a less expensive way. You can find some relatively painless ideas to start here .
You can also try contacting your various service providers to see if you can negotiate the price down. One company called Billcutterz will even try to do this for you in exchange for part of the savings or you can negotiate them yourself and keep all the savings. In any case, see if you can also switch to a lower cost provider.
2) Take advantage of tax-sheltered retirement accounts. First, make sure you’re contributing enough to your employer’s retirement plan to get any matching contributions. Otherwise, you’re leaving free money on the table.
Second, consider contributing more to the plan or to IRAs, which can provide greater flexibility in investments and withdrawals. For example, Roth IRA contributions can be withdrawn anytime for any reason without tax or penalty. (Earnings withdrawn before 5 years and age 59 ½ can be subject to taxes and a 10% penalty but contributions come out first.) Don’t forget an HSA if you have an eligible high-deductible health insurance plan since it can be used tax-free for health care expenses in retirement (including some Medicare premiums) or penalty-free for any purpose after age 65. You can also make additional "catch-up" contributions to IRAs and employer-sponsored plans if you're over age 50 and to HSAs if you're over age 55.
3) Try to pay off your debts by the time you retire. When you pay off debt, including your mortgage, you generally save more in debt payments than you can safely withdraw as income by keeping that money invested when you retire. Start with the debts with the highest interest rates like credit card debt and when one debt is paid off, apply the payments to the debt with the next highest interest rate. You can use this Debt Blaster calculator to see how quickly you can become debt free and how much interest you can save with this strategy.
4) See how much you qualify for in Social Security benefits. You can get an estimate of your benefits here . Keep in mind that if you're married, you and your spouse qualify for the higher of your benefit or a spousal benefit equal to one half of the other spouse's full benefit as long as the other spouse has filed for benefits. You can still get this benefit from an ex-spouse even if they haven't filed for benefits as long as you were married for at least 10 years, divorced for at least two, and not remarried. (You still qualify if they remarried though.)
5) Earn additional income. Consider working part-time or even starting a side business. Many retirees choose to work as a way to stay active even if they don't need the money. Don't have the time? You can make money renting out your car on sites like Turo and Getaround .
6) Tap into home equity. If you’re fortunate enough to have equity in your home, there are several ways to turn this into a retirement asset. One way is to downsize your home and invest the difference. Downsizing can also reduce your property taxes, homeowner’s insurance, utilities, and general expenses if you move to an area with a lower cost of living.
If you prefer to stay in your home, another option is to take out a reverse mortgage. The mortgage company pays you and you get to stay in your home for as long as you like. However, you will most likely lose your home to the mortgage company if you move out or when you pass away.
7) Sell life insurance policies you don’t need. If you no longer have dependents and don’t need life insurance, you can sell your policy for a fraction of the death benefit through what’s called a life settlement in which the life settlement company continues paying premiums and then collects the insurance when you pass away. This works best if you have a permanent policy or a term policy with many years left on it and are in less than ideal health, but even getting a small amount for your policy can be better than nothing. You can find a life settlement company at the Life Insurance Settlement Association .
8) Share your home. If you have an extra bedroom, consider renting it out for extra income. On a similar note, there’s a growing trend of single senior citizens sharing a home together. This can dramatically reduce your expenses and provide someone to share chores with and come home to. You can also rent out a room in your home temporarily to travelers on sites like Airbnb .
9) Become an expat. An increasing number of Americans are retiring overseas to countries where they can live very well on a fraction of the income it would take to retire here. Most of these places also have warm weather, and technology is making it easier to stay connected with friends and family back home. (Many of whom you might be far away from anyway even if you were still in the US.) Just make sure you do your homework first since there are obviously a lot of legal, financial, and cultural complications to moving abroad.
10) Work longer. If none of the above work for you, you may just just need to work longer. The advantages are more Social Security benefits and possibly more pension benefits and larger retirement account balances. You also won't have to stretch your retirement dollars as long. However, this option depends greatly on your health and prospects for continued employment so make sure you have a plan B as well.
This is just a start. The key to retiring with limited resources is to be resourceful and creative. Consider consulting with a qualified and unbiased financial professional to discuss your options. See if your employer offers access to one for free through a workplace financial wellness benefit.
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