June 10, 2013, 6:01 a.m. EDT
4 ways to avoid a retirement shortfall
By Bill Losey
About Bill
Bill Losey has nearly 25 years experience in the financial services industry
and is a Certified Financial Planner practitioner and Certified Retirement
Coach. He is the owner of Bill Losey Retirement Solutions, LLC, a fee-based
registered investment advisory firm serving a small nationwide clientele. Bill
is the author of Retire in a Weekend!
The Baby Boomer’s Guide to Making Work Optional and he publishes Retirement Intelligence®, a free,
weekly, award-winning newsletter that reaches over 5,000 subscribers worldwide.
Formerly, Bill was the “resident retirement expert” on CNBC’s “On the Money”
television program and a freelance contributor to the AARP. Discover more at BillLosey.com. Follow Bill on Twitter @BillLoseyCFP
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In January, 2011 the first baby boomers began turning 65, the
traditional retirement age.
When most people hear the word "retirement,” they immediately think of Social
Security and their company pension. What they don't think of, or even realize is
that Social Security and defined benefit pensions were designed to be
supplements to personal retirement savings. They were never intended to replace
personal retirement savings altogether. This year the average monthly Social Security benefit for retirees is $1,262, representing about 39% of their total income, according to the Social Security Administration. The monthly benefit a retiree receives from their company pension is based on a formula that incorporates such variables as the employee's pay, years of employment, age at retirement, and other factors. The important point here is that the income from defined benefit plans is a fraction of what the retiree's salary was when they were working.
Even with Social Security and company retirement plan benefits combined, retirees can experience a retirement shortfall. A retirement shortfall occurs when a person retires and doesn't have enough retirement income to cover their living expenses.
Here are four possible ways to mitigate a possible retirement shortfall:
1. Advanced planning
This is probably the best way to avoid a retirement shortfall. Comprehensive advanced planning for retirement puts you in control of your overall retirement. It leaves little to chance because you'll plan for any challenges that might come up. This is best done with the help of a competent, experienced retirement planning professional.
2. Postpone retirement
Postponing retirement enables you to earn a higher income longer and gives your investment accounts more time to grow. Even if you "retire" from your full-time job, you can get a part-time job, do a phased retirement, or start a home-based business to generate extra income in retirement.
3. Leverage your home equity
If you've been in your home for a long time, and it's paid off or almost paid off, you can leverage that equity to supplement your retirement income. Examples of how to do this include selling the home outright and moving to a smaller home or condominium, and taking a reverse mortgage. It's wise to consult a retirement planning professional before taking either of these steps.
4. Adjust your expectations
Finally, if you reach retirement age and don't have enough saved to provide the lifestyle you had hoped for in retirement, you can always re-evaluate the retirement lifestyle you're willing to settle for. While some may find that a distasteful thought to entertain, many find that what's really important to them in retirement is different from what they thought would be important.
Also see: Retirement confidence is within reach
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