8 Ways to Fix Retirement Savings Shortfall

Ninety percent of Americans will not be able to retire on their savings and Social Security income. Don’t follow the crowd. If you are anxious about the adequacy of your retirement savings, read on. If you want to verify whether you are saving enough, try these two resources: ChooseToSave.org and the free app for smart phones, Ballpark E$timate. The app is remarkably fast and easy to use.

1. Set your goals. What are your retirement plans? Use the Ballpark E$timate app to gauge whether you have saved enough. Be prepared to answer the following questions. Where do you want to live? Do you want a simpler life or lots of travel? Are you going to help out adult children if they get into a financial bind? Are you or your spouse going to work part time or volunteer?
2. Hire a financial advisor. You need to make sure you have the correct mix of stocks, bonds and other investments. The short-term picture is not the critical time period. Don’t worry about investment performance between now and next summer. With the help of a financial advisor, set yourself up to be financially secure when you wake up on your 80^th You don’t want to run out of money at the end of your life.
3. Reduce spending & increase savings. This is the simplest way to shore up your retirement savings. It is also the least popular. Be realistic about how much you are spending now. It is difficult to decide which perks in life to cut and which to keep. Every day I help divorcing couples slog through this exercise. Knowing your expenses is paramount. Reducing them is even more crucial. When you reduce your spending now, you are reducing your anticipated retirement living expenses because you are getting used to living on less. At the same time, when you increase the amount you’re putting into savings, you need less in retirement savings. This is a good double whammy.
4. Eliminate debt. After the financial crisis, people are beginning to borrow money again. If you have a mortgage and two car loans, you might be spending $2,000 a month on debt. That might be affordable now, while you are still earning a good salary. However, when your total expected retirement spending is $5,000 per month, that $2,000 is a whopping 40% of your entire spending budget. Under this scenario, when you eliminate your debt before you retire, you will have a substantial increase in your standard of living during your golden years. (Don’t forget to look into making extra principal payments on your mortgage. If your mortgage contract allows, extra payments can accelerate debt elimination.)
5. Work longer. Delay your retirement. Continue working at your current job as long as you can. Meet with a financial advisor before you retire. If you wait until after you retire to see an advisor, you have far fewer options. While you are still employed, there are significant steps you can take to improve your position. After your retirement party, consider switching to a part time job. Think about consulting or working in a store.
6. Delay taking Social Security. When you work longer, you can more easily delay taking Social Security. Each year that you postpone taking Social Security beyond age 62 and up to age 70, you can increase the amount you get by about 7% to 8%. You should get advice on when and how to start taking Social Security. Most people think that age is the biggest decision regarding Social Security … age 62 or later. For a married couple, there are 81 different strategies to consider when making Social Security benefit decisions. How will you know which of the 81 strategies will maximize your benefits? You need to consult an expert. Start with your financial advisor from number 2 above.
7. Contribute more to your 401(k) or IRA. If you are struggling to save money now, add as much as you can to these retirement contributions. Even a small increase can contribute to a more financially secure retirement.
8. Life insurance paying for itself. If you have a cash value life insurance policy, find out when the policy can “pay for itself” with the cash value and dividends. This can free up some cash to go into your company savings plan and/or your IRA.

No one single strategy is going to fix a retirement savings shortfall if you have fallen far behind. Try as many of these steps as you can and see how that will reduce the angst in your uphill climb to retirement security. The key is in the variety of moves.