Determining how much income you'll need
in retirement requires projecting the type of
lifestyle you plan to have and when you want
to retire. However, as you grow closer to
retirement, you may discover that your
income won't be enough to meet your
goals. If you’re in that situation, you'll
need to adopt a plan to bridge this
projected income gap.
One way of dealing with a projected
income shortfall is to stay in the
workforce longer than you had planned.
This will allow you to continue supporting
yourself with a salary rather than dipping
into your retirement savings. Depending
on your income, this could also increase
your Social Security retirement benefit.
You'll also be able to delay taking your
Social Security benefit or distributions
from retirement accounts.
Remember, too, that income from a
job while receiving Social Security may
reduce the benefit you receive if you
are under normal retirement age – by
$1 for every $2 you earn over $17,640 in
2019. Once you reach normal retirement
age, you can earn as much as you want
without affecting your Social Security
retirement benefit.
Delaying retirement can also let you
continue to build tax-deferred funds
in your IRA or employer-sponsored
retirement plan (or tax-free funds in
Roth accounts). And if you're covered
by a pension plan at work, you could
also consider retiring and then seeking
employment elsewhere. This way you
can receive a salary and your pension
benefit at the same time. Just make sure
you fully understand your pension plan
options.
You might also consider adjusting your
spending habits to bridge the income
shortfall. Start by preparing a budget to
see where your money is going. Here are
some ways to stretch your retirement
dollars:
- Refinance your home mortgage if
interest rates have dropped since
you took the loan.
- Reduce your housing expenses by
moving to a less expensive home or
apartment.
- Sell one of your cars if you have
two, and when you need a new car,
consider buying a used one.
- Use the proceeds from a second
mortgage or home equity line of
credit to pay off higher-interest-rate
debts.
- Transfer credit card balances from
higher-interest cards to a low- or no interest
card, and then cancel the old
accounts.
- Ask about insurance discounts and
review your insurance needs (your
need for life insurance may have
lessened).
- Reduce discretionary expenses like
lunches and dinners out.
Some people invest too conservatively
to achieve their retirement goals. That's
not surprising, because taking on more
risk increases your potential for losses.
But greater risk also has the potential for
greater reward, and with life expectancies
rising, retirement funds need to last
longer. So if you’re facing an income
shortfall, you may consider shifting some
of your assets to investments that have
the potential to outpace inflation.
The amount of investment dollars you
might consider keeping in growth oriented
investments depends on
how long you have to save and your
tolerance for risk. Still, if you are at or
near retirement, you may want to keep
some of your funds in growth-oriented
investments. Get advice from a financial
professional if you need help deciding
how your assets should be allocated.
Once you are within a few years of
retirement, prepare a realistic budget
that will help you manage your money
in retirement. Think long term: Retirees
frequently get into budget trouble in
the early years of retirement, when they
are adjusting to their new lifestyles.
Remember that when you are retired,
every day is Saturday, so it's easy to
overspend.
©2019 Broadridge Investor Communication Solutions, Inc. All rights reserved. This material provided by David P. Guzzetta.
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