Not everyone has a 6-figure job or a sizable next egg, but that doesn’t mean retirement has to pinch.
Not everyone has a million-dollar investment portfolio that one day will turn into retirement income. For most people, retirement isn’t filled with world travel or wining and dining. It’s just another phase of life, and one that takes careful budgeting.
For those of more modest means, retirement might seem scary. When you think about the average advice on how much you need to retire, your projected nest egg might feel a little bit light. But even if with less income, you can still stretch it and make it last.
1) Take Your Retirement Budget for a Test Drive
You can plan all you like, but you won’t know if your projected retirement budget will work until you try it on for size. People with a modest retirement income naturally think about reducing expenditures as much as possible once the time comes. But thinking it and living it are two very different things.
Try on your projected budget for a month or two and see how it fits. If it’s too tight, you’ll know far enough in advance to make adjustments, such as working longer, before that lifestyle becomes a requirement. And if you’ve got plenty of wiggle room, you’ll have a new choice. Go back to your regularly-scheduled life with more confidence, or stick with the budget and save more toward retirement.
Working longer lets you save more and collect more in Social Security.
2) Hold off on Social Security Until the Last Minute
It’s tried and true advice, but it bears repeating. The longer you wait before taking Social Security benefits, the more you’ll get when the time comes. But if you take benefits early, you’ll have a reduced amount for life. Full retirement age varies, but the Social Security Administration can advise you on your exact full retirement age. You might also want to use a Social Security calculator to help you figure out the optimum time to take your benefits.
For example, a person born in 1958 will reach full retirement age at 66 years and 8 months. Retiring early at 62 gives you only 71.7 percent of what you would have at full retirement age. At 65, the amount goes up to 88.9 percent. But if you wait even longer, you could get a Social Security credit to the tune of about 8 percent for every year that you postpone, up until age 69.
3) Minimize the Tax Effect
Taxes are one of those guaranteed things in life. And even though you expect to have a modest retirement income, smart tax planning can make a real difference. “Tax planning isn’t just for the rich,” financial planner, Andrew Russell tells the New York Times.
Take advantage of every tax break that you can get. Moving money from an IRA to a Roth account could give you a sizable break on taxable income, says the Times. And the lower your income, the less you’ll pay on your Social Security benefits.
You won’t always need a bigger home.
4) Downsize Your Lifestyle
A lot of retirees downsize once they’re no longer in the regular workforce. It’s a money-saving strategy, and it also makes life a lot simpler. Moving farther from town can save on your mortgage and property taxes, too. Just be careful about not isolating yourself. Move too far away, and you might feel lonely and uninvolved with your friends.
Other ways to downsize include selling an unneeded extra vehicle, donating household items to charity for a tax credit and cutting back on unnecessary technology. But one word of advice from Bankrate: If you have a strong emotional attachment to your home, moving away might not be worth it when weighed against your quality of life.
Time was, most retirees had modest means. More people had pensions, which are all but a thing of the past now, but even Social Security hasn’t been around forever.
And don’t let the recent wave of retirement planning awareness fool you. More people might be planning now than before, and that’s a good thing. But the Times says that most Americans between 55 and 64 only have about $104k in retirement savings. Although you feel like your retirement income is modest, you might not be as far off from average as you think.
NewRetirement takes an active role in helping people of all ages plan for retirement. We can help, whether you’re just getting started or if the day when you’ll leave the workforce is just around the corner. Anyone can improve their retirement plan, and it all starts here. Check out our retirement calculator, and learn about other options that can help you stretch your dollars and have a better, more secure lifestyle.
