After having worked so hard, and having “followed the book” when it comes to saving for retirement, many pre-retirees have seen their investment portfolios drop significantly in recent years, leaving them wondering what can be done to have enough money saved up in order to retire.
They are in what is called “catch-up” mode. Here are three steps that can be taken in order to get you back to where you need to be financially in order to retire. Before I present these tips, I would like to caution investors against trying to make back their money by becoming too aggressive with their investments.
Recently, I met with a do-it-yourself investor who said that after having taken a bath in the market, he decided that in order to hit his retirement goals, he needed to quickly make back all his money. He made very aggressive investments, and not only did he not make his money back, rather, he added insult to injury and dropped another 20 percent. I can’t tell you how often I hear this same story. Here are the steps:
While this may not be the most cheery advice, it may be the most effective. Delaying retirement by a few years can be a huge factor in being financially able to retire. By working not only do you push off tapping your retirement funds, but you can keep saving for a couple more years. According to the Oblivious Investor newsletter, “Whether it’s sticking it out for an extra couple years at your current job or picking up part-time work in a more enjoyable field after leaving your job, retiring later is often the highest-impact thing you can do for your retirement finances. Each additional year of work is one more year to accumulate savings and one fewer year of spending from your savings.”
You might say that you can’t save any more money. Well as you get closer to retirement there is a good chance that your kids may be out of the house, which means that you can save on tuition. It’s also important to create a budget where the first expense item is to “pay yourself first.”
If you create a disciplined budget with an increase in built-in savings, you will be surprised at how much you will be able to sock away. It may not be fun, but you have no choice if you want to be able to retire. The Wall Street Journal ran an article about retirement and said, “The place to start is by being aggressive about saving. More is always better, but even relatively small amounts of money can make a difference. And with the kids out of college and hopefully out of the house, being disciplined about budgeting and potentially downsizing a home sooner rather than later could free up helpful amounts of money from each paycheck. ”
Delay Social Security
While you can start taking Social Security benefits at age 62, for those still working and trying to build savings for retirement income, it pays to wait on taking your benefits until you reach the age of 70. According to Forbes, “You can start drawing early retirement benefits from Social Security at age 62, but it pays to wait, especially if you continue working past that age, and it’s crucial if you’ve begun saving late.
Delaying the start of Social Security benefits until age 70 can boost the monthly payout by as much as 80%” A former coach of the Seattle Seahawks, Chuck Knox, used to say, “You have to play the hand you’re dealt.” While it may not be how you envisioned your pre-retirement years, if you take the tough, necessary steps now, you can still enjoy a financially independent retirement.
The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc. or its affiliates.
Aaron Katsman is a licensed financial professional in Israel and the United States who helps people with US investment accounts. He is the author of the book Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing.