You’ve Started Saving Too Late for Retirement…Now What?

For a variety of reasons, life sometimes gets in the way of saving for retirement. Or you’ve knowingly decided not to save and you are reaching an age to retire and you’re beginning to panic. So, what can you do?

The biggest step you can take is to delay your retirement. While this is obvious, the impact may be bigger than you think because you gain in 4 ways when you do this. First, your social security check will be higher when you wait. In the case of early retirement, a benefit is reduced 5/9 of one percent for each month before normal retirement age, up to 36 months. If the number of months exceeds 36, then the benefit is further reduced 5/12 of one percent per month.

For example, if the number of reduction months is 60 (the maximum number for retirement at 62 when normal retirement age is 67), then the benefit is reduced by 30 percent. This maximum reduction is calculated as 36 months times 5/9 of 1 percent plus 24 months times 5/12 of 1 percent. When you delay retirement after the full retirement age (usually 67), you could gain up to 8% per year in increased benefits.

A second benefit of delaying your retirement is that you’ll now have more years to save. This leads to a third benefit which is the extra years before retirement will give your current savings more time to grow when you keep it invested. A final benefit is that when you delay retirement, you’ll have fewer retirement years that you’ll have to fund.

I realize that not everybody can choose to delay retirement. For many people, health issues may keep you from working. This takes this biggest step off the table. Or, you may be able to continue to work part-time. Bringing in an extra few thousand a year may enable you to either delay claiming Social Security, or keep you from spending down some of your savings.

A second significant action you can take is to pay off your debts, especially your mortgage, cars and credit card/consumer debt. This is now attacking the liability side of your personal balance sheet. The less payments you have, the lower your cost of living, which lowers the amount of savings you’ll need.

A third step is to lower your biggest expenses in retirement starting with housing. Housing, which includes mortgage, rent, property taxes, insurance, maintenance and repairs is the largest expense for retirees. More specifically, the average retiree household pays an average of $17,472 per year ($1,456 per month) on housing expenses which represents almost 35% of their annual expenditures. The average U.S. household spends $20,679 annually ($1,723 per month) on housing, representing approximately 33% of their total annual expenditures.

A recent report by Harvard’s Joint Center for Housing Studies found that 46% of homeowners between the ages of 65-79 and 25% of people aged 80+ still have mortgages. If you can downsize (or at least “downprice”), you can put a dent in your biggest expense.

The next biggest expense for retirees is transportation. While commuting expenses go away when you retire, not all transportation expenses will. This includes vehicles, gas, insurance, maintenance and repairs, car rental, leases, loan payments, and public transportation.

The average retiree household spends $7,492 a year ($624 a month) on transportation versus $10,742 ($895 a month) for the average U.S. household. There are several ways to save. Shopping for auto insurance every year or two is a good start. Dropping down to one car instead of two will pay off. Alternatively, using services like Uber or Lyft, especially if you don’t have a daily need for a car, can help you save compared to traditional car ownership. Lastly, don’t buy into the auto industry’s constant marketing and feel like you always need some new, awesome car. Keep your cars longer and buy ones that are dependable and get you to where you need to go. Remember, this article is all about affording retirement when you haven’t saved enough, so you really shouldn’t be driving an expensive car.

The third largest expense retirees face is healthcare, which includes health insurance, medical services, supplies and drugs. On average, $6,833 per year (or $569 per month) is spent by retiree households versus $5,193 for the average U.S. household. The bulk of this cost across all households is health insurance.

Waiting to age 65 to retire will help because Medicare kicks in. Have a good understanding of what Medicare covers and what it doesn’t before you retire. Doing so can potentially save you hundreds of dollars a year. Taking good care of yourself (consistently exercising and eating better – think more veggies and fruit) is another way to save money on healthcare costs, especially prescription drugs.

So, if you’re worried that you haven’t saved enough and the clock is ticking, there are other ways you can make your savings go further and have a happy, healthy retirement.

Enjoy the Journey!