A large nest egg certainly makes it easier to retire well, but there are ways to enjoy a comfortable retirement without a seven-figure sum in your 401(k) plan. Boosting your Social Security payments or taking on a part-time job can play a big role in improving your retirement prospects. A few lifestyle adjustments could also help you to reduce your ongoing expenses. Here’s how to retire comfortably when you’re not a millionaire.
Maximize Social Security. When you sign up for Social Security, your age plays a big role in how much you will receive. Those who start payments before their full retirement age, which is 66 for most baby boomers, collect a reduced benefit, while those who delay claiming Social Security between ages 66 and 70 typically become eligible for 8 percent bigger monthly payments for each year of delay. For a baby boomer who is eligible for $1,500 per month at age 66, claiming at age 62 would reduce his benefit by a quarter to $1,125 per month. But he could also increase his benefit by 32 percent to $2,460 by waiting until age 70 to sign up. The optimal claiming age depends on how long he lives. “If you have longevity in your family and you have good health, the general rule of thumb is the longer you can delay that benefit, the more you will receive,” says Scott Snider, a certified financial planner for Mellen Money Management in Jacksonville, Florida. “If you are a smoker or overweight or maybe your parents only lived to age 72, then maybe it’s better to start taking it earlier.”
[See: 10 Ways to Increase Your Social Security Payments.]
Work part time. A part-time job can be used to pay for some of your current bills and gives your existing savings more time to grow. The best part-time jobs come with additional perks, such as opportunities to socialize with co-workers or clients or receive employee discounts. And since you are spending part of your days at work, you will be less tempted to overspend on entertainment. “Working part time can have a significant impact because you are not just adding dollars to your cash flow, but you are also delaying withdrawals,” says Robin Sherwood, a certified financial planner for HTG Investment Advisors in New Canaan, Connecticut. “Staying engaged in some fashion is actually good for you financially, intellectually and emotionally.”
Pay off your mortgage. Housing is likely to be your biggest retirement expense. Paying off your mortgage significantly reduces this monthly bill. While you will still have to pay for insurance, property taxes and home maintenance, these costs are likely to be a fraction of what you were paying for your mortgage. For example, housing costs a median of $1,133 per month for homeowners age 65 and older in the Augusta, Georgia metro area who have a mortgage. Retirees who have paid off their mortgages have median housing costs of just $386 monthly, according to Census Bureau data. “If you can pay off the mortgage, that definitely is a plus for reducing your expenses in retirement,” says Isaac Reginald Allen, a certified financial planner and founding principal of Stalwart Financial Planning in Fayetteville, North Carolina. “When you have a home, if you move and relocate and downsize, you can free up some of that money to be able to utilize in retirement.”
[See: 10 Ways to Reduce Your Housing Costs in Retirement.]
Adjust your lifestyle. While delaying retirement or taking on a part-time job can improve your finances, some people want to retire now, even if that means they will have to live on less. Major ways to reduce your ongoing expenses include downsizing to a smaller home in a more affordable neighborhood or even moving to a less expensive part of the country. This strategy works especially well for people who live in a high-cost metro area near their job who don’t mind relocating once they no longer need to commute to work. “You have to get out of the commuting distance of major metro areas, and then you will start to see a real reduction in your costs,” Sherwood says. “Moving from New York to Boston is not going to do it. You need to move from New York to Rochester or something.”
Prepare for health care costs. Some people wait until age 65 to retire so that they will qualify for Medicare. However, Medicare has a variety of out-of-pocket costs including premiums, deductibles and coinsurance. Medicare premiums will typically be deducted from your Social Security checks, but you will likely need to finance deductibles and coinsurance out of pocket. There are additional premiums for prescription drug coverage and Medigap policies, which can fill in some of the coverage gaps in traditional Medicare. Setting up adequate health coverage will help you to avoid catastrophic medical bills.
[Read: A Guide to Getting a Pension.]
Find a job with a pension. Most jobs don’t offer a traditional pension plan, but there are a few employers that continue to provide guaranteed income to retired employees. Government and union jobs are the most likely to come with traditional pensions, and some large employers continue to offer this valuable retirement benefit. A few specific industries are also especially likely to provide pensions, including utility companies, credit firms and insurance carriers. However, once you find a job that provides a pension plan, you will likely need to stay at the job for a specific number of years before you qualify for retirement payments. Most pension plans are set up to reward long-term employees, and those who stay only a short time could get nothing or a very modest payout.
Emily Brandon is the author of “Pensionless: The 10-Step Solution for a Stress-Free Retirement.”
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How to Retire Without $1 Million in a 401(k) originally appeared on usnews.com
