Wednesday, April 16, 2014
FAIRFIELD-SUISUN, CALIFORNIA
99 CENTS

6 strategies to create a more secure retirement

The retirement landscape is changing dramatically. The vision of the “golden years” has given way to worries about retirement security for many Americans – worries that are well-founded.

The National Institute of Retirement Security released a report in 2013 on how prepared we are for retirement. “The Retirement Savings Crisis: Is it Worse Than We Think?” states that nearly 45 percent of all working-age households do not own assets in a retirement account; that’s about 38 million people. The typical American family has only “a few thousand dollars” saved for retirement and the median savings for people who are 10 years away from retirement is $12,000. One-third of people ages 55-64 haven’t saved anything for retirement.

Are you one of these people?

According to the U.S. Department of Labor, fewer than half of Americans have calculated how much they need to save for retirement, and in 2009, 13 percent of private industry workers with access to a defined contribution plan, such as a 401(k) plan, did not participate. The National Retirement Risk Index, which measures the percentage of working-age households that are at risk of not being able to retain their pre-retirement standard of living in retirement, found that 53 percent of households are “at risk.” The percentage of “at-risk” households increases when health care expenses are added into the equation. Many people falsely assume that Medicare will cover all of their health care expenses, but this is simply not true.

A survey by the Transamerica Center for Retirement Studies found that 64 percent of workers are not confident about their retirement security and 42 percent expect to work past the traditional retirement age of 65. Even so, more than one-third of workers in their 50s and 27 percent of workers in their 60s do not have any kind of retirement plan.

In addition, Transamerica Center for Retirement Studies reported that more than 21 million American workers expect to rely primarily on Social Security for their retirement income. This is a poor strategy, considering that the average monthly Social Security benefit in 2013 was only $1,269. The actual benefit is less for lower-wage workers who contributed less over their lifetimes and less for those who elect to initiate Social Security benefits before their defined retirement age.

Uncertainties related to the Social Security system exacerbate the issue. The Social Security Administration reports that there are currently 2.8 workers for each Social Security beneficiary, with that number expected to drop to 2.1 workers by 2033. Proposed solutions could result in reduced benefits for retirees, along with increased worker contributions.

The changing financial landscape, coupled with a longer life span, inadequate planning and the unknowns related to the Social Security system may jeopardize the golden years. However, there are strategies that can improve one’s retirement prospects:

  • Don’t wait. Develop a retirement plan now. There are many retirement calculators on the Web. For example, the Center for Retirement Research at Boston College has an interactive tool to help people develop a reasonable plan for maintaining their standard of living in retirement. The tool Target Your Retirement can be found at http://crr.bc.edu/special-projects/interactive-tools/target-your-retirement.
  • Work longer and delay retirement benefits. Working longer and delaying retirement benefits can dramatically increase your retirement income. Take Social Security, for example. Social Security benefits are based on how much you earned during your working career. Higher lifetime earnings result in higher benefits. In addition, taking Social Security early, that is before your full retirement age, results in reduced monthly payments. For example, if you retire at age 62, your benefit would be about 25 percent less than what it would be if you waited until you reach full retirement age. There is an even greater incentive to wait longer. 

Contact the Social Security Administration before making the decision to retire. The website www.ssa.gov has numerous tools to help you calculate your life expectancy, retirement income needs and benefits.

Sometimes health problems force people to retire early. If you cannot work because of health problems, consider applying for Social Security disability benefits.

Be sure to sign up for Medicare before the age of 65, if you plan to delay your retirement. Failure to do so could result in increased fees.

  • Downsize and simplify. People grow attached to their homes, cars and other things. Downsizing and simplifying, however, has many benefits. Mortgage, rent, car payments and insurance are four expenses that can be decreased while still creating a comfortable life. It also enables people to choose an aging-friendly environment where one can age in place for as long as feasibly possible. Such environments typically include increased access to public transportation, grocery stores and medical services.
  • Reduce expenses (and debt) now. Reducing expenses and paying off debt is a necessary step toward creating a more secure retirement. Entering retirement with a high mortgage payment and credit card debt can greatly compromise financial security.

The National Council on Aging developed a free resource tool for setting financial goals, cutting costs, reducing debt and saving.

In addition, the Economic Check-Up tool can be accessed at www.benefitscheckup.org/esi-home.

  • Be creative. We are limited only by our imagination and preconceived ideas of “how things should be.” Get a roommate. Barter for services instead of paying for them. Sell your car and use public transportation. Look for inexpensive entertainment options like the local library, community events and public parks. Picnic or potluck with friends instead of going out to eat. The options are endless and open up possibilities for new and meaningful experiences.
  • Redefine your expectations. Unrealistic expectations can create a sense of dread and be immobilizing. Realize that you are not alone. One-third of people over the age of 65 are still working, and 42 percent of workers expect to work longer than they originally anticipated.

Working longer may have added physical and mental health benefits. One recent study, “Work Longer, Live Healthier: The Relationship Between Economic Activity, Health And Government Policy,” found a correlation between early retirement and deteriorating health. While there are many individual factors that affect overall health, and the scientific community is not all in agreement with the conclusions of the study, it is widely accepted that staying actively engaged physically, cognitively and socially has positive health outcomes.

A final note for seniors already living on a limited retirement income. The National Council on Aging has an additional resource to help you locate resources to help pay for medicine and food.

Visit the Benefits Check-Up at www.benefitscheckup.org to access that resource.

Rochelle Sherlock, M.A., is consultant to the Senior Coalition of Solano County, an advisory board to Solano County’s Board of Supervisors.

Rochelle Sherlock

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