Options When You Have an Insufficient Retirement

No one likes to think about it, but it does happen, especially in our current economic climate.  People reach retirement age and don’t have quite enough saved.  As the Huffington Post points out,

The average person in the United States will spend 21 years in retirement, but will deplete their savings after just 14 years, leaving a shortfall of seven years, according to an HSBC report released today [2/20/2013].

Of course, most of us would like to live a long life, but finding financial support when your retirement is insufficient can be difficult.  If you are nearing retirement, here are some strategies you may want to consider.

Continue Working

If you are physically able, why not continue working?  The longer you work, the more you’re able to put aside for retirement and the fewer years you will need that retirement money to support you.  Plus, if you have a job with benefits, the health care benefits will likely also help you save money.  I, personally, think that the current idea of ‘retirement’ is actually a new phenomenon.

If you aren’t able or willing to continue at your current job, maybe there is a less demanding option.  Plenty of people now work from home doing jobs they find on the Internet.  You could freelance, especially if you have in demand skills such as accounting.  Likewise, you could consider tutoring.  One woman worked as a physical therapist and was able to work only one to two days a week.  These types of part-time jobs help you bring in cash while allowing you to enjoy a flexible schedule.

Evaluate Your Assets

Your Home During Retirement

If you have a paid off home, it may be one of your greatest assets.  You could sell your home  and use the money to help pad your retirement.   Move into a smaller place to save on utilities and taxes.

If you prefer to keep your home, you could look into a reverse mortgage to pump more money into your  retirement account.  Just make sure you understand all the ins and outs of such an arrangement before agreeing.

Finally, another option may be to rent a portion of your home out or to get a roommate.  Depending on where you live and the space you are renting, you could earn a couple hundred to as much as a thousand dollars a month while still being able to stay in your home.

Creating A Stream of Income with Your Retirement Account

Single Premium Immediate Annuities are becoming more and more popular (as they should be).  A SPIA without any riders is the easiest of all annuities to understand. You hand an insurance company a lump sum and they provide you with a stream of equal payments in return for the remainder of your life.  If you die early the insurance company wins, and if you live to the ripe age of 95 you’ve won. Most people don’t buy plain vanilla SPIAs, as you can add a pelethara of riders:

  • Death benefit on there for your heirs,
  • increase the payments by inflation,
  • A guaranteed payment for a certain amount of years so if you die your heirs get the rest of the payments
  • Etc.

This stream of income may take risk off the table for you while providing stability.  At the same time it could also detrimentally pull you out of the market inhibiting growth on your assets.

Evaluate Your Expenses

I am not a huge fan of frugality blogs but am pulled into sites like Mr. Money Mustache who, in my opinion, pulls away from frugality for frugality’s sake and turns it into financial independence.  Due to his low low expenses he has retired before he has turned 35! If he has figured out a way to live (quite happily it seems) for the next 60 or so years based on the low expenses, a 65 or 70 year old should be able to as well.  While a 65 year old’s and a 35 year old’s medical costs are different,  that should be partially offset in terms of the 30+ years of living expenses.

Retiring without enough money is a scary prospect.  How well you will be able to increase your retirement depends on your age and health as well as your willingness to continue working or leverage your home as additional retirement income.  I probably think about this topic more than people my age as I work in this world and have seen the ridiculousness of some people‘s expectations.

12 Responses to Options When You Have an Insufficient Retirement

  1. Not having enough money in retirement is scary at any age! If you retire young, you can always go back to work. Working past retirement age (roughly 65 years old) should be only for people enjoy their careers. Unfortunately, many seniors will be working past 65 years old because they did not save enough. I believe in multiple income streams too to make sure you have enough money in retirement.

    • I don’t know when that 65 year old retirement age came into existence. Doesn’t feel like its been around for ever? Especially when average mortality age was lower.

  2. I think people don’t save b/c they love to work. If they cared about retirement and didn’t like to work so much, they’d save more. Pretty straight forward.

    I really do enjoy living it up with my limited time, hence the frugality theme is not for me.

    • “If they cared about retirement and didn’t like to work so much, they’d save more”

      – Why can’t people just be dumb and not make the connection?

  3. I would like to save as much as I can while I am still working. I am planning also of what to do after retiring. But I know I am still too far from that point.

  4. I guess I will be working forever because I have almost nothing saved. I had to restart my life in my 40s and I won’t be rid of debt until I am 51. 10 or 15 years is not enought time to put together a retirement fund.

    I am hopeful that in my 60s I will be able to scale back the number of hours I work. I am not sure if my body will still be up to the challenge of my job (I stand all day) and there are no seniors doing the job.

    • Jane please start reading Mr.MoneyMustache literally as soon as possible. I think it may change your whole outlook on the topic

  5. Well. One always feels one doesn’t have enough for retirement…or one should, if one has any common sense.

    However, now that I’m there, one thing I’ve discovered is that in retirement you need nowhere near as much as you thought you did.

    Exactly why this is so, I haven’t yet articulated. If I figure it out, it should make a good blog post, anyway!

    When I quit the hated teaching job at the end of the fall 2012 semester, I budgeted exactly the (rather modest) amount I’ve always budgeted to cover living expenses.

    To my astonishment, in spite of several large expenses in January, I came in $300 to the good. This month I diddled away phenomenal amounts when unplanned car repair and plumbing bills surfaced after I’d racked up an indulgence. I figured I’d have to pay about $500 to $800 out of savings to cover these frolics. But NOOOO….it now looks like cash flow from Social Security, the S-corp (tiny!), and less than a 4% drawdown is gonna cover the ENTIRE THING.

    It remains to be seen whether this is an illusion of English-major math or whether it’s objectively true that you don’t need anything like as much in retirement as you do when you’re working. We’ll see over the next few months.

    • REALLY interesting situation. Seems very counter-intuitive. Is the S-Corp making more money? I will say that the market is flying high (as of the writing of this comment – Dow is at 14,200) maybe 4% of that makes it seem like more money is in the checking?

      Either way I am very happy for you! Especially since I knew how much you hated that job.

  6. Getting a good handle on your expenses is very important if you have insufficient retirement assets. Rather than income replacement, focus on where you spend and where you can optimize that spending in retirement. The result may surprise you.

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