Retirement Planning – Not Saved Enough for Retirement? Here Is What You Can Do

Retirement is the beginning of the golden years of your life and the end of a steady income. To ensure you have a secure retired life, it is critical to have an adequate retirement nest egg that can support your living expenses during the non-working years of your life. For many people who enter retirement without a considerable sum of savings, their only source of income is the Social Security benefits. Currently, more than 64 million retirees depend on Social Security to fund their retirement expenses. However, on average, a retiree receives only $18,000 annually from these benefits. This can be grossly insufficient to cover retirement expenses. Even though Social Security monthly benefits were raised in 2021 by $20, the paycheque is still not enough to fulfil all retirement costs. Hence, it is critical to create a retirement corpus that can easily support you during the later years of your life.

Most people understand the importance of having retirement savings but are still under-saving for their golden years. According to the recent report on retirement in America, one in four Americans have no savings for retirement. The remaining people are significantly short of their savings target. The report states, people in the age group of 55 to 64 years, only have $120,000 as their median retirement balance. Given this sum, the monthly retirement budget is only $1,000, which is way too less than the money required for a secure retired life. Moreover, with rising inflation and life expectancy figures, retirees need to up their savings plans. But the reality is far from expectations. The report also states that 13% of the people above 60 years have no retirement savings. Further, 17% of those between 45 and 59 years also have no retirement corpus. The figures are shockingly lower for the young age groups. However, the young savers still have a considerable time before retirement and can create a sufficient balance for their future. But, for those nearing their retirement age, the lack of savings does not bode well for their future.

Even though there is no definite rule for retirement savings, you can assess your monthly expenses and estimate if you have enough to maintain the same standard of living during retirement. Financial experts have different rules for retirement savings. Some experts suggest you save at least 80% of pre-retirement income while others recommend having at least a million. A few experts also recommend holding on to 12 times your pre-retirement income. If you need a professional opinion on how much you need to be putting away every month to have sufficient savings for retirement, do consult with a financial advisor and get started on the same.

There is no thumb rule you can follow to estimate if you have enough savings for your retirement. Everyone has a different lifestyle that impacts their retirement nest egg. Also, life expectancy, retirement plans, retirement spending, health issues, Social Security benefits, etc., play a pivotal impact in retirement savings. However, the objective is to assess if you are on track with your retirement savings. Alternatively, you can use a free online retirement calculator to know if you are saving enough for retirement. You only need to put in basic details, like your pre-tax salary, age, current expenses, etc., in the tool, and the retirement savings calculator will do the rest.

If you find out that your retirement savings are insufficient, you can take immediate steps to cure-correct your plan. Here are some tips you can follow if you have not saved enough for retirement:

1. Delay your retirement: If you have not saved enough for retirement, you can always consider delaying your retirement until you have sufficient funds. Moreover, the retirement scenario in America has drastically changed over the years. Many people do not want to fully retire and hence, opt for a concept called semi-retirement, where they keep working in some capacity even after they officially retire. As per a 2019 survey conducted by United Income, over 20% of people above 65 years of age are either still employed or searching for a job. The trend of semi-retirement has been steeply rising since 2016. According to a 2016 survey initiated by the Pew Charitable Trust, 66% of the survey participants said they would work past their official retirement age of 65 years. Apart from this, life expectancy figures have altered the retirement age for people. Today, people are living longer than before. As per the Money Guide, a 65-year-old married woman has a 50% probability of living above 90 years. Previously, a person retiring at 66 would probably live until 79 years. This indicates the rise in the life expectancy figures, which, in turn, indicate a longer retirement horizon. Hence, you can consider delaying your retirement because you will most likely still have a long retirement period to fulfill your dreams. Delaying retirement means you have more working years at hand, implying you can earn and save more. This could help you achieve the retirement saving milestone. Moreover, by delaying your retirement, you will have a shorter retirement span. Hence, the retirement corpus you need might not need to be as large as you previously anticipated.

2. Create additional income sources: If you often wonder whether you have enough saved for retirement, the answer typically depends on your current standard of living and retirement spending plans versus your accumulated savings. If your retirement balance is not adequate to support your retired life, you have to take a step up and consider increasing your income sources to redirect more money towards your savings. You can do this by continuing to work in the same job for a longer time than previously planned. However, you can also consider creating a secondary income source, such as taking up freelance projects, part-time jobs, turning a hobby into a profession, and more. If you are very close to your retirement age, you can keep working in some capacity even after you retire. For instance, you can set up a small business that does not consume much of your time and still helps give an extra influx of cash during non-working years. Apart from offering financial advantages, working during retirement gives you other benefits. It helps you stay active, keeps your mind occupied with productive activities, and helps you socialize. If you do not want to keep working after retirement, there is another way to cover your savings gap. You can create passive income sources, such as rental real estate. You can invest in real estate and use it to generate rental income. You could rent it as a guest house or on Airbnb. Alternatively, if you do not have funds to buy a rental property, you can let out a spare room of your current house to get some rent during retirement and even before you retire. Another medium to create passive income during retirement is by taking up a non-executive directorship in a profitable company. You could also engage in consultancy work or give any patents or copyrights for legal use and get royalty payments.

3. Invest your money immediately: What happens if you retire without savings? It is more than likely that you will live a financially insecure life. You might have to make significant financial sacrifices and even adjust your standard of living to lower your monthly dues. However, there is another way out to ease your worries. You can consider investing your money, while you have the time to do so. You might think it is too late to invest in the market because you are so near your retirement age and have a low-risk tolerance. But you can always consult a financial advisor to guide you to create a portfolio that aligns with your risk profile, financial goals, and investment horizon. You can still invest in stocks and earn a high return. However, your equity exposure can be limited. Stock investments can help you get a steep hike in your retirement savings amount. If you do not want to invest in stocks, you can aim to invest in bonds and other secure assets that offer comparatively lower returns but give you assured income during the non-working years of your life.

4. Tap tax incentives: You can catch up on your retirement savings by effectively using certain tax incentives to save money during retirement. Two of the most useful tax advantages that can work for your benefit are – Saver’s Credit and Catch-Up Contributions in retirement accounts. According to a report, only 34% of retirees are aware of the Saver’s Credit. If you are saving in a qualified, tax-advantaged account like a 401(k), 403(b), 457, IRA (Individual Retirement Account), etc., you can utilize the Saver’s credit. Previously known as the Retirement Savings Contributions Credit, Saver’s Credit gives tax exemptions to low- and medium-income taxpayers who are creating a retirement corpus. This credit is given above the default tax benefits of retirement savings accounts. In some cases, Saver’s Credit can help eliminate the tax bill on withdrawals from retirement accounts. You can claim a Saver’s Credit for 50%, 20%, or 10% on the first $2000 you save in your retirement account. The exact credit percentage depends on your adjusted gross income and tax filing status – married, single, divorced. Apart from Saver’s Credit, you can use the Catch-up Contributions to make up for the lack of savings in your retirement accounts. If you are 50 years or above, you are eligible to make catch-up contributions to your 401(k) and IRA. For 2022, you can contribute $6,500 over the general limit of $20,500 in your 401(k). This means you can save up to $27,000 in 2022 in your 401(k) plan. Each year, the IRS (Internal Revenue Services) alters the contribution limits for retirement accounts. You can keep an eye on the IRS changes and aim to maximize your contributions and claim catch-up contributions in your retirement account.

5. Relocate or downsize: If you currently have little money to retire, it might be time to call for extreme measures. You could consider relocating to a new state to reduce your state tax burden or get better retirement aids. Moreover, some states are more affordable to live in than others and offer better weather, culture, and work opportunities. Some of the states that rank well in terms of affordability are Georgia, Tennessee, Missouri, and Indiana. The state you live in also has a huge impact on your taxes. In comparison, the tax burden in some states can be thousands of dollars more than in others. Few of the tax-friendly U.S states include South Carolina, Colorado, Tennessee, Arkansas, Nevada, Delaware, District of Columbia, and Hawaii. Among these, Delaware is the most tax-friendly state, where you pay 0% in state and local sales tax, no estate or inheritance tax, and the average income tax range is between 2.2% and 6.6%. On the contrary, some of the most unfriendly tax states in the U.S. are New York, Vermont, Texas, Nebraska, Illinois, Kansas, and New Jersey. If you do not wish to relocate to another state, you can contemplate downsizing your current family home to shifting to a smaller, more economical home to boost your retirement funds. As per research, one in three people considers using their property to fund their retirement expenses. Downsizing or relocating can significantly uplift your retirement savings balance. You could also consider investing the money in immediate annuities or preferred securities like T-bills to create a fixed and secure retirement income stream.

6. Consider engaging the services of a financial advisor: If you are at the juncture of your life where you are approaching retirement and have insufficient funds to support your lifestyle later, it might be best to hire a professional financial advisor to get expert financial support. These professionals have years of financial experience and can guide you on how to bridge your retirement income gap. A financial advisor can help you create a portfolio that generates returns that are optimized per your risk tolerance and financial goals. The advisor can also work with you to lower your tax bill and invest in alternative assets that suit your financial profile. You can consult the professional to set goals and strategic plans to achieve your retirement corpus needs. A financial advisor works with you to get your finances in order, redirect more money in savings, utilize tax incentives better, identify additional income opportunities, and much more.