The Best Budgeting Strategies for People Nearing Retirement

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David DiLoreto, 60, and his wife, Penny, 59, were looking forward to their retirement before the Great Recession. David was the president and chief operating officer of a multistate electrical construction company based in the San Diego area, and Penny was the controller for a law firm. They made about $250,000 a year combined, and they had a few million invested in stocks and their 401(k)s. Life was good, and Penny left her job to pursue her hobby of breeding Boston Terrier dogs. In 2007, David sold his company and entered a state of semi-retirement.

But within a few years, their investments were pretty much wiped out, ending the idea of retiring early. While that sounds like a familiar story - plenty of portfolios were walloped during the recession - David says he hadn't diversified enough.

"The bottom line is that I invested our money with a few stocks where the CEOs of these public companies led me down a path thinking that their business was taking off. I believed them and they lost nearly everything we had saved," DiLoreto says. He and his wife watched their $3 million in savings dwindle to $250,000.

[See: Your 10-Step Financial Recovery Plan.]

The DiLoretos decided to start a business to help fund their retirement. David considered construction consulting, but Penny's hobby was taking off. She had become a veterinary assistant, an animal behaviorist and a professional dog trainer.

So in April 2012, the couple opened K9 Dog Park, a dog training and grooming center in Escondido, Calif. If all goes well, "the business should bring in a steady income for us until we decide to sell it or whatever. The nice thing about having a business that nearly runs itself is that it is like having a big nest egg and drawing the interest," DiLoreto says.

Not that this is a sure-fire path to a successful retirement. "Our business is break-even one month, losing money the next, and a profit the next," he says.

If you're on the verge of retirement or recently retired and trying to figure out your budgeting issues, and especially if you don't plan on starting your own business, here are a few suggestions.

Start looking at your investments. Assuming you have some. Not everyone does, thanks to "other competing priorities, like buying a house and paying down college loans," says Dan Keady, director of financial planning for TIAA-CREF.

In fact, a new Merrill Lynch study that surveyed 5,415 adults over age 25 suggests that many Americans might be risking their own retirement security. For instance, the study found that 60 percent of those 50 and older are providing financial support to family members other than their own minor children. (One of the participants in the study had this memorable quote: "I thought I would be supplementing my grandchildren's college funds. It turns out I was the college fund.")

Keady suggests that your preretirement years are a good time to take another look at your portfolio allocation and gradually shift into more conservative investments, so you can avoid becoming a cautionary tale - and also look into annuities, which can provide a reliable stream of income.

Hold off on taking Social Security benefits for as long as possible. Everyone knows that if you wait to take Social Security benefits until age 65 or 67, depending when you were born, you'll receive a fatter monthly check, but it's still smart to consider why it's a good idea to wait. It's not only about maximizing your total benefits, says Angela Deppe, a Chicago-based certified public accountant and author of "It's Your Money! Simple Strategies to Maximize Your Social Security Income."

[See: 13 Money Tips for Married Couples.]

It's also about maximizing your spouse's benefits, too. "Let's say you have a husband and wife, both age 62. The husband plans to take the benefit as soon as possible at age 62 because he feels it's his money and he's entitled to it," Deppe says. "He has paid into the system for 40 some years, and he wants it paid back before he dies or before the system goes broke - his misguided opinion. He wants to start the process as soon as possible."

Deppe points out that by taking Social Security at age 62, the husband will not only reduce his benefit by as much as 25 percent, but the survivor benefit will be reduced as well. "The survivor benefit is locked into the amount when the husband, in this example, takes the money. For married couples, the decision to take Social Security benefits should be a joint decision, as it can affect each other," Deppe says.

Plan to get sick. If your mindset is that the glass is always half full, this might not sound like a pleasant thought. But you don't have to be a senior citizen to notice that health issues tend to crop up as you get older. So be ready for them.

"If you haven't already, now is a good time to think about purchasing long-term care insurance or contributing to a health care savings account," Keady says. "You can also help yourself by choosing the right Medigap plan, which many Americans purchase to cover the costs in excess of Medicare coverage."

[See: 6 Ways Retiring Can Be More Affordable.]

These Medigap plans come in many different shapes and sizes, with varying benefits and costs, adds Keady, who suggests researching every angle before buying a plan. But he definitely thinks it's smart to get a Medigap plan. "The right decision early in retirement could save you tens of thousands of dollars during retirement," Keady says.

Take a test drive. When you think you're ready for retirement, take a "test drive," suggests Chris Augelli, a vice president at ADP Retirement Services, headquartered in Roseland, N.J. To do this, he suggests coming up with a budget for your post-retirement life, and then living within that budget while you're still working.

You'll either come out of your experiment feeling more confident or less than ever, Augelli says.

Either way, better to find that out now.



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