After losing 3.6 percent in January, the Standard & Poor's 500 index went up 4 percent in February. These ups and downs may not pose too great a concern for those with a long time until retirement, but they can certainly shake the confidence of the millions of near-retirees across the country. "Everyone's looking at January as a poor indication of the overall year," says Derek Gabrielsen, a wealth advisor with Strategic Wealth Partners in Independence, Ohio. "But we were due for one of those 5 percent corrections due to the cyclical pattern of how things work."
Of course, financial concerns around retirement are hardly new. A 2010 survey by Allianz Life Insurance Company of North America found that 61 percent of baby boomers (those between ages 44 and 75) feared outliving their money in retirement more than death. Alicia Munnell, director at the Center for Retirement Research at Boston College, says those concerns are still relevant four years later. "I think people are extremely worried about having enough money, and I think that's a valid concern," she says. The Center for Retirement Research tracks Americans' wealth holdings, and for 2010 (the most recent year with data), the typical household with a head age 55 to 64 and a 401(k) had $120,000 in combined 401(k) and individual retirement account assets. That's just over half of the $220,000 that Fidelity Investments estimates a 65-year-old couple retiring in 2013 would need to cover just medical expenses throughout retirement.
If you're nearing retirement and don't want to outlive your money, here are some strategies to consider.
Talk with your advisor. Gabrielsen suggests that near-retirees talk to their financial advisor to ensure their investment portfolio is set up properly for their risk tolerance and time horizon to retirement. "You don't want to get too greedy," he says. "If you're staying in too long or having too much money in equities, you can definitely participate in the upside, but you'll also participate in the downside." He cautions that while many stocks performed well in 2013, this year will be "based more on the company strength rather than outside factors like the economy," so some stocks might not fare as well.
Drew Horter, founder and chief investment strategist at Horter Investment Management in Cincinnati, recalls in 2008 talking to clients whose investments were affected by the recession. "[They] wished they would have done something or had an advisor who could have advised them to take a more active approach," he says. "The big thing is don't put yourself in that risk position to jeopardize your retirement date."
Work longer. If your investment income and Social Security checks aren't enough to sustain you during retirement, consider working for a few more years, either part time or full time. "This reduces the number of years over which you have to support yourself and changes the ratio of working years to retirement years," Munnell says. "The idea that we can work for 30 years and support ourselves for 40 -- the arithmetic just doesn't work." Working longer also gives you more time to contribute to your 401(k) or other retirement accounts.
[Read: When You Should Take Social Security.]
Delay claiming Social Security. Just because you can start claiming Social Security benefits at age 62 doesn't mean you should. Waiting until age 70 to claim Social Security could boost your monthly benefit by as much as 67 percent, according to Munnell. She says Social Security "reflects a really good type of income that is inflation-adjusted. It's as if you're buying an inflation-indexed annuity provided by Social Security, and it dominates any product you could buy in the private sector." Of course, delaying Social Security also means you'll collect fewer checks over the course of retirement, so if you die soon after age 70, you would miss out on some of the benefit of those larger checks.
Move to a cheaper house. Downsizing to a smaller home doesn't always save you money (for instance, if you move to a smaller home in a more desirable location or with more amenities). Munnell suggests moving someplace cheaper so you can reduce your expenses. "People should recognize that their house is one of their largest assets after Social Security," she says. "If you're not wedded to the notion of leaving your house to your children, think of ways to tap into that equity."
Consider a reverse mortgage. Under the right conditions, a reverse mortgage provides cash flow from a home's equity. The loan becomes due when the borrower dies, sells the property or breaches the contract. Reverse mortgages got a bad reputation during the recession because some Americans used them out of desperation and wound up losing their homes. "People who are desperate should not have a reverse mortgage because you're required to pay your property taxes and homeowners insurance," Munnell says. "Some number of people failed to make these payments and were found in default." Since the Reverse Mortgage Stabilization Act of 2013, the product has changed to include a calculation to ensure you have enough money to cover those costs.
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