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5 Steps to Greater Retirement Self-Reliance

Philip Moeller

Poverty rates have been rising for older Americans. They're not alone, of course. The meager recovery from the recession has left millions of us worse off. Younger people can at least hope for a rebound when things get better. But it is hard to find a silver lining in any of the clouds that hang over older folks.

[See The Case for Fixing Social Security Right Now.]

Tax rates are set to rise. Social Security, Medicare, and Medicaid are under the gun. Federal and state spending will be under pressure for years, if not decades. And the flood of aging baby boomers promises to intensify demand for senior health and safety-net programs, just when it's clear that the money for any expanded efforts is just not there.

The Employee Benefit Research Institute (EBRI) recently took a look at poverty rates among people age 50 and older, and how they changed between 2001 and 2009. Looking at four different groups of older people, here is how their poverty rates have changed:

Ages 50 to 64: from 9.1 percent in 2001 to 12.3 percent in 2009

Ages 65 to 74: from 8.4 percent to 9.4 percent

Ages 75 to 84: from 8.8 percent to 10.7 percent

Ages 85 and older: from 15.9 percent in 2001 to 14.6 percent in 2009

"Poverty rates are highest for those age 85 and above," the EBRI study said. The reasons are not hard to find, it explained. Personal savings may be depleted in old age and, if a spouse dies, Social Security benefits may drop sharply. Also, medical bills rise with age, further squeezing budgets for people who have lived largely on fixed incomes for decades.

Poverty is far higher for women than men, and for minorities as well. Worse, people in poverty face greater health problems and, ironically, may need to spend more money on healthcare than wealthier people. This further impoverishes them, or it would if they could afford the care. More likely, they just die sooner.

[See Social Security, Medicare Outlooks Worsen.]

The study looked at people ages 55 to 70 in 2001. Among those whose incomes were above the poverty line, 12.5 percent had died by 2009. But among people of the same age in 2001 whose incomes were below the poverty line, the study found that nearly 22 percent of them were dead eight years later.

I apologize for the grim statistics. But they dramatize a point that can't be made often enough for people near to or in retirement: Your financial situation is likely to get worse, not better. And there is nothing on the horizon that even looks like a tin bullet for these problems, let alone a silver one. When that inner voice tells you, "Better safe than sorry," please listen to it. Consider these steps to take better charge of your life:

1. Downsize before you have to. Whether it's moving to a less expensive home, getting rid of a car, or reducing household spending, consider these steps sooner rather than later.

[See How Delaying Retirement Can Help You.]

2. Learn how to say no. Being a soft touch for adult children and especially grandchildren is understandable. But make sure it's not misguided. A dollar from your retirement assets is much dearer to you than to your kids. They have decades to earn back that dollar. You don't.

3. Delay Social Security. Between the ages of 62 and 70, delaying Social Security benefits will add roughly 8 percent a year to your monthly retirement benefit for the rest of your life. Now that Social Security has finally created an online tool (enter "Social Security statement" in your search engine) to show you your benefit choices, take a look and see if you can wait longer before claiming benefits.

4. Invest in wellness, not disease. As with deferring Social Security, taking better care of yourself can turn out to be one of the best investments you can make. Study after study confirms that big and unanticipated healthcare expenses are the largest destroyer of retirement finances.

5. Hope for the best, but plan for the worst. The EBRI study confirmed that the loss of a spouse can be financially devastating. "In 2009, poverty rates for couples, single men and single women were 4.1 percent, 15.6 percent, and 20.9 percent." If you died, how would it affect your spouse's finances?

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