So, you’re not putting aside money for retirement because Social Security and your company pension have it all covered for you, right?
The maximum annual Social Security payout for someone retiring at age 66 these days is just under $32,000 per year. And the average payout for someone that age is less than half that amount. And if you wait until 70 to retire, the maximum benefit is just over $42,000 per year. (Maximum benefits go to people who typically earn higher salaries during a significant part of their work life. Average payouts go to those that have salaries in the middle of the pack. Only a small part of the population ever receives the maximum benefits.)
It’s time to get real and put pen to paper.
Write down your basic expected monthly expenses in retirement including things like:
- mortgage payments or rent
- transportation costs
You’ll quickly discover that those Social Security payments of $15,000, $32,000 or $42,000 (before taxes!) per year will hardly cover the basics — much less the things like travel, eating out and having adventures with your grandchildren that can make retirement fun. Also, take into account that people’s healthcare expenses increase significantly once they turn 70, and you’ll realize that your Social Security will only go so far.
Remember: Social Security is a hot-button budget and political issue these days. It’s unlikely that Social Security benefits will increase in the future. And there’s a very real possibility they could go down. Plus, there is a high likelihood that the system could change, leading to a different payout structure that could impact your retirement.
Fewer and fewer companies offer pensions these days. And the pensions that are still out there are often badly underfunded. There are countless stories of companies in the auto, steel and retail industries that defaulted on their pension promises. Governments have also not fully funded their pensions, short-changing the police officers, firemen and teachers that based their retirement plans on them.
If you have a pension, good for you. Consider it “extra” or “bonus” money for your retirement. Based on history — and the current state of pension funding — building your retirement plan around a pension is not a wise move.
Take charge of your own retirement.
If you’re depending on Social Security or a pension to fund your retirement, it’s never too late — or early — to turn things around. Start by:
Finding ways to save more. Refinance your mortgage to a lower rate. Consolidate your credit card debt to reduce monthly payments. Bring lunch to work instead of eating out. Watch a movie at home rather than at a theater. Give up that expensive latte. There are many easy and painless ways to find an extra hundred dollars or more a month to put toward retirement.
Putting money into your company 401(k) plan. Make sure you contribute enough of your own money to take full advantage of your company’s match. After all, these “free” dollars from your employer could make a big difference in the long run.
Opening an IRA. Depending on your age, you may be able to set aside tax-deferred “catch-up” contributions in your IRA that could help you jumpstart your savings between now and retirement.
Opening a Roth IRA. Taxes could have a big impact on how much money you have after retirement. A Roth could help you take a balanced approach to saving that will allow you to manage your tax situation after you retire.
Working in retirement
Saving more for retirement isn’t the only answer. After all, there’s only so much money most people have available to put toward this goal. Many decide to continue to work in retirement. Here are some options to consider:
Continue to work longer in your current job. This can be a difficult or disappointing option for many people who have dreamed about retiring at a particular point in their lives. Plus, some companies have mandatory retirement age rules that make working longer impossible.
Finding part time work in retirement. This can be a good choice for many. However, the undependability of part time hours can make scheduling difficult. And certain jobs may not be right for older people who have physical limitations.
Work from home via the Internet. More and more retirees these days are choosing this option. Scheduling is flexible, and work can be done any place, any time, as long as you have a computer and connection to the Internet. There are virtually no physical limitations to doing this work and significant income can be generated from it. Check out this option that could help you make up your retirement income gap.
The bad news: Social Security and your pension may not fund your retirement as you expected.
The good news: You have time and options to make up the shortfall and get you on track to enjoying a secure retirement.
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