The Exchange

5 Things to Do When Retirement Savings Fall Short

The news of the retirement crisis is inescapable.

The latest numbers illustrating the point are, as usual, alarming. An Employee Benefit Research Institute survey about retirement confidence, published last week, echoes what we’ve been hearing for years – Americans haven’t saved enough to get them through a comfortable retirement. The survey found that 28% of workers are not at all confident about having enough money for a secure retirement -- essentially unchanged from the record lows in 2011. More troubling is that 57% of workers reported that the total value of their household’s savings and investments (excluding the value of their home and pension plans) is less than $25,000. Ouch.

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So what do you do if you find yourself nearing retirement with little savings?

Beyond the worn-out advice to work longer and cut expenses, the reality is there are very limited choices, says Harold Evensky, a certified financial planner and president of Evensky & Katz Wealth Management in Coral Gables, Fla. “My best advice is to accept reality. The danger is chasing unrealistic returns. Good planning may help but it can only increase returns at the margins; it will not make up huge gaps between actual income and desired income,” he says.

We spoke to some financial planners about approaching retirement age with a too-small nest egg. You may not be able to retire when and how you’d like, but there are ways to make up for at least some of shortfall.

1. Move somewhere cheaper…

A recent report from the Social Security Administration that looked at the spending patterns of the over-55 population found that housing is the largest component of the average retiree household’s expenditures, at 35%, followed by transportation (14%), out-of-pocket health care (13.2%), food (12.3%), and entertainment (5.1%). So it’s not surprising that this is an area with a lot of opportunity for cost-cutting.

“Location optimization” is key in retirement, says Mary Beth Storjohann, a CFP at Hoyle Cohen, a wealth advisory firm in San Diego. Where you’re looking to retire is a critical component of cutting your expenses. Retiring in California, for instance, might not be feasible with today’s tax rates (the personal income tax rate for single filers earning between $46,766 and $1 million there is 9.3%). But those states with little or no taxes should be considered, she says. States such as Florida, Nevada, Texas and Washington don’t tax individual income.

2. …And cheaper still

It’s more extreme, but moving to another country can be an option, too. The cost of living in Mexico, Panama, Costa Rica or the Philippines is lower than the U.S, says Bryan Hopkins, a CFP and certified public accountant in Anaheim Hills, Calif. It’s a big move and not for everyone – you may be able to live on $2,000 a month and save on health care costs, but keep in mind that income earned while living overseas could be taxed by both the U.S. and a host country.

3. Refinance your mortgage

If you haven’t already (and are in a place to do so), consider refinancing your mortgage for a lower rate. Keep in mind that you’ll “need to have some cash on hand to close the mortgage, but we have seen clients cut their monthly payments by $200-$500 and be able to make up the closing costs in a year or two,” says Timothy Kim of Francis Financial, a wealth management firm in New York.

Alternatively, get some roommates. “If you own a large home and aren’t willing to downsize, consider renting out a room or two to a trusted acquaintance or friend in order to generate an income stream,” Storjohann says.

Moving in with family is another option as multi-generational living arrangements have become more common. (A Pew Research analysis from 2011 examined Census Bureau data that showed the share of Americans living in multi-generational family households increased 4.9 million from 2007 to 2009.) “I have a few clients who have sold their home and used a part of the proceeds to build ‘granny quarters’ and live with their children, while maintaining their independence in ‘their own home,’” says Hopkins.

4. Figure out how much you spend

Evaluating your cash flow sounds boring, yes, but it’s pivotal. Without looking at where you can make changes or knowing what your lifestyle really costs, it’s impossible to determine if what you’ve got saved will sustain your needs going forward. This point applies more to those in their 50s, who are still far enough away from traditional retirement age that it can still be a sound approach, says Barbara L. Steinmetz, a CFP in San Mateo, Calif.

A lot of people don’t know how much they’re spending now, and therefore don’t know how much they’re going to spend in retirement. You might actually be surprised to find out that your retirement expenses will be less than what you’re spending now.

“I have clients who spend just as much as they did prior to retirement, and others who spend a lot less,” says Ted Toal, a CFP and senior partner at Rockwood Wealth Management in Annapolis, Md. Costs like life insurance and spending on children will likely disappear as you move closer to traditional retirement age. They’ll be replaced by other expenses, but normally these costs will be nowhere near spending levels in pre-retirement, Toal says.

5. Part-time work

Granted, the economy is still sputtering, so finding work – any kind of work – can be difficult. Though the jobs market for seniors does seem to be brightening: the unemployment rate for those 55 and older was 5.6% in February, compared with 6.1% a year ago, according to the latest data from the Bureau of Labor Statistics.

Hopkins has several clients who have retired from their “real” jobs and taken up part-time employment. One couple in their 80s both work part-time at a local convention center as hosts, “and enjoy the opportunity to get out of house, meet new people and earn a few extra bucks,” he says. Their combined wages are about $10,000 a year, which takes a lot of pressure off their portfolio. “Their part-time income, supplemented with Social Security and required minimum distributions from IRA accounts, lets them enjoy a very comfortable lifestyle. It’s not lavish, but it’s comfortable,” Hopkins says.

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