Are you thinking your retirement dream is unattainable? Think again.
Even if you are a few years away from retirement and you haven’t saved as much as you planned — we know, life gets in the way — you can use your remaining time to catch up.
Yes, it’s crunch time.
Merrie Meyers, 60, a grant writer for Broward College, hopes to take the big leap within the next year or two. Because she also worked as a communicator for the school system for 25 years, she’ll have a pension. For her, retirement planning crunch time means getting her financial plan in order, continuing to save and thinking twice about large purchases, but it also means making sure her social and emotional sides are ready, too.
“I tried to envision Merrie 2.0: What do I see myself doing? For a lot of people, their identification is entirely tied up with their jobs. … I developed a social life that includes volunteer time, hobbies that I enjoy, and friends that are not connected to my job, so I have a real life after I leave.”
Even if you don’t have a pension coming — and most Americans don’t — there are a number of steps you can take to boost your retirement savings. For many, especially for early retirees who will be shouldering the rising cost of health insurance for the first time, the reality may be working part time in retirement to supplement your dream, but if it is something you are passionate about, it doesn’t have to feel like work.
Meyers plans to do some work in retirement, such as freelance grant writing for nonprofits and continuing to teach adjunct communications classes, to keep her mind sharp.
Local financial planners have some advice for her — and for you. As with all financial advice, personal situations vary and it may be the time to seek out a professional financial advisor to help you.
Define your dream. What will your retirement look like? “Is your goal to stop work entirely, or is it to gradually step out of the workplace? Is it to pick up a teaching job or do more of that volunteer job that you really like? For every goal, we have to fund it, right? So let’s put it down there. Is it buy a boat or travel every year? You have to put a number next to it,” said Harriet J. Brackey, senior wealth manager with BDO in Fort Lauderdale and a former personal finance writer for the Miami Herald. Do you want to hold onto the house or leave a pile of money to the kids — if so, that needs to be part of your goal too, she said.
Find out where you stand now, how much you will need to retire and make a plan.
Get started. “Use an online calculator, or just start out like you plan a trip by saying where am I going, when do I need to get there and how am I going to do it. Let’s do a road map,” said Mari Adam, a financial planner with her own firm, Adam Financial Associates in Boca Raton.
How much will you need to save? Adam uses ratios as a guide. “Look at your income and you want to save some multiple of that, which could be 8 to 10 times.”
Brokerages, financial organizations and the government also have retirement calculators you can use to run the numbers.
Caution: That big number will scare you, if you are behind. But you likely still have levers you can pull: spending less, saving more, delaying retirement.
“If you didn’t do the prep work up to 55, it’s kind of dicey because you don’t have a lot of years. If you are not going to make it to the finish line with a fully funded retirement, your solution might be part-time work, so you need to figure out something that will be really satisfying,” Brackey said.
Time for a reality check: Whatever you are spending now, studies show you will likely spend a little more in retirement initially, then a little less, and then more again as health issues rear up, Brackey said. The most important thing, she said, is to have a financial plan.
In most cases, plan to take your Social Security as late as possible. Washington Post columnist Michelle Singletary debated this in a recent column. While individual situations vary, it is usually not smart to start taking Social Security at 62 because each year you wait essentially earns you another 7 percent to 8 percent in monthly benefits.
Also, if you plan to work in retirement, you probably should wait to take your benefits until your full retirement age (65 to 67 depending on the year you were born). That’s because before your retirement age, benefits are reduced by $1 for every $2 you earn above the annual limit, which is $17,040 in 2018, Singletary said. After you reach your full retirement age, your benefits won’t get docked no matter how much you make. Read more on ssa.gov and search for “How Work Affects your Benefits,” she said.
The Social Security Administration has calculators on its website that let your run scenarios. You can also register there and find out what your monthly benefit is expected to be.
Save as much as you can and max out on those retirement accounts.
“In your mid-50s you still have time to play catch up if need be, but you might have to sacrifice lifestyle such as not getting that new car or canceling those Miami Heat season tickets,” said Andrew Menachem, a wealth adviser at The Menachem Group at Morgan Stanley in Aventura and a Miami Herald columnist. “Use those funds to max out your 401(k) and deeply analyzing your current investments, making sure they are giving you the growth you need, while you’re still in the accumulation phase.”
You can take advantage of higher limits on 401(k)s and IRAs after age 50 — you can save up to $24,500 annually in your 401(k) and $6,500 in your IRA. Adam said a lot of people forget about a spousal IRA, if one spouse is not working.
If you are self-employed, you can set up your own retirement plan, “and if you don’t, that is a huge opportunity you are missing.” Adam said. Depending upon the situation, that could be a SEP IRA, an individual or solo 401(k) or a Simple IRA, for instance, and most are free to set up and maintain, she said.
“If people don’t save it, they tend to spend it; that’s why we push people to get money into a plan,” she said. “It’s human nature.”
If you are a part of the growing Gig Economy, you could set up an individual or solo 401(k).
These can be set up by any small business or consultant as long as the only employees are the owner and/or a spouse, no other employees, Adam said. You can put in $18,500 per year through employee salary deferrals ($24,500 if age 50 or over), plus an employer profit-sharing contribution of 25 percent, up to a total of $61,000 for the 50-and-over crowd.
“This is a plan you can set up for free at any brokerage firm. It’s fantastic for people 50 or over trying to play ‘catch up’ because it provides an amazing boost to your retirement nest egg and up to a $61,000 tax deduction,” Adam said.
Your investment strategy needs to be diversified, thoughtful and nimble.
“It’s been approximately 10 years since the Wall Street meltdown and many investors have forgotten that stocks and bonds can fall at the same time. Therefore, many investors are not as insulated as they may believe,” Menachem said. “During periods of time when one asset class has several years of outperforming others, investors have a tendency to allow greed to interrupt a once well-balanced investment plan. It’s times like these that many investors abandon diversification and invest in whatever is working at the time. History has shown this ends tragically.”
Expect that you will live a long time, Brackey said. Do not become so conservative with your investments because you see that last paycheck coming that you don’t invest for growth.
“If you are going to have a retirement that is typical today, it is going to last 20 to 30 years, and you must beat inflation to preserve the purchasing power of those dollars,” Brackey said. “So you can’t just pull a blanket over your head and buy a low-paying CD. It used to be you could buy a bond that pays 6 to 8 percent and you were good. You can’t do that today, you have to maintain some exposure to equities because that money has to last a very long time.”
Pay off credit card debt — now. “We never like to see credit card debt,” Adam said. “If you have debt like that going into retirement, you may need to work part time in retirement to pay it down.
Consider the house. Is it time to downsize? Or could you move to a less costly area now or in retirement? These are levers you can use, but you still have to factor in the cost of your new place to live.
But if you want to stay in your house, reverse mortgages aren’t always the answer. “If you really can’t afford the property, you probably shouldn’t stay there. You still have to pay the taxes, the maintenance, the upkeep,” Adam said. “It’s a tool in your toolbox but for most people I don’t see it as a good choice.”
Open your mind to the possibilities. In order to ensure an enjoyable retirement, think beyond the dollar signs.
Meyers recently joined a small writers group, where the members critique one another’s work, and the dog lover took over editing a newsletter for the Dog Writers Association of America. “I am loving it. It is giving me texture to my life, but I had to open myself up to the possibilities.”
This helps you think past the paycheck, said Meyers. “All you have to do is stick your toe in while you are still working — you don’t have to jump off the dock. You just start thinking about what’s next.”
Follow @ndahlberg on Twitter. You can email her at firstname.lastname@example.org