With an economic landscape that is as rocky as it has been in recent memory, retirees and pre-retirees are being forced to make some tough financial decisions and lifestyle choices. For many, that means making less money go further. While that can be a daunting task, here are some tips and suggestions to help seniors in or approaching retirement to do exactly that:
Defer Social Security
Most people start collecting social security at age 62 and defer tapping into their other accounts until 66. But if you start taking your IRA earlier, you can supplement your income in the short term and collect 25% more on social security just by waiting a few years (Social security benefits increase by 8% annually). Look at the math: At age 62, the Social Security benefit is $1,500/month. If you take that $1,500/month out of your IRA instead, and defer until age 66, you will subsequently get 25% more Social Security income ($2,066/month). In this economy, 25% greater income is a massive difference. Unfortunately, many financial advisors won’t recommend that because they are typically compensated based on assets under management, and this strategy cuts into that figure.
Delay the Retirement Party
Health permitting, many seniors are choosing to work longer—the employment level of those over 55 has risen by 4 million jobs since the beginning of the recession. One couple who are clients of mine, are in their mid and late 70s, and they are each still working 30 hours a week because they want to continue to maintain their lifestyle.
Don’t Rush to Sell the Farm
Unfortunately, real estate is not the nest egg it used to be. With home values down, many seniors looking to downsize and sell their homes are finding that the sale does not provide the financial boost they were counting on. There are other options, however. Consider holding off on a move until home prices start to recover. In a tough marketplace, renting a home out rather than selling might be a wiser economic choice for some families and individuals.
Take a Second Look at Annuities
Make your money last by taking a lump sum and purchasing an annuity. These types of guaranteed income sources look more and more attractive relative to the volatile stock market or low-interest rate CDs.
Learn to Say No
It can be hard to say no to your children and grandchildren. For your good and theirs however, that is exactly how you might have to respond if they come to you for financial help. Many parents and grandparents get stuck raiding retirement accounts to help support their family members. It’s never fun to deny them, but paying penalties or losing your own long-term security for the sake of temporary support for your kids is rarely a good idea.