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The 'Tiny House Movement' and 'Binge Saving': The New Retirement

Warning: This article is only for those committed to making a retirement savings change!

Retirement statistics. One out of five individuals near retirement, or between the ages of 55 and 64, have absolutely zero money saved, according to the Federal Reserve's latest Report on the Economic Well-Being of U.S. Households. That's 20 percent.

Unfortunately, most people aren't trying to figure out how much money they'll need in retirement. About 36 percent of workers have less than $1,000 saved for retirement, according to a survey of 1,000 workers by Employee Benefit Research Institute and Greenwald and Associates, released in April.

Are you one of those people who put retirement saving on the back burner?

Project how long your money will last. There's no magic retirement number which holds true for everyone, but this retirement readiness calculator can give you an idea of whether or not you're on the right retirement path.

Let's assume you're 55 years old and earning $50,000 per year. You have $200,000 in retirement savings and expect to save $5,000 per year until retirement at age 65. According to the retirement readiness calculator, you're facing a scary future. Let's assume you'll receive $17,000 per year in Social Security and would like your current $50,000 a year income in retirement. Your savings will only last until age 72.

If you are afraid you haven't saved enough for retirement, here are five drastic steps you need to take.

1. Face your retirement picture. Get your head out of the sand and face reality. If you don't know how much you've saved, what your expenses will be in retirement, or how much you can expect from Social Security, then you need to find out.

Check your retirement savings account statement. Whether it's a standard savings account, an individual retirement account, or a 401(k) workplace retirement account, figure out how much money you have saved up today. Contact the Social Security Administration and figure out the amount you can expect in retirement. Be aware that the longer you wait to claim Social Security, the greater your monthly check.

Estimate how much money you'll need in retirement. Many professionals suggest that you'll need 70 to 80 percent of preretirement income. This is a gauge, as your personal situation depends on many factors, such as the cost of living where you live, your health and your lifestyle.

Use a retirement readiness calculator to find out if you're on the right retirement track. If your retirement picture is lacking, then consider the following retirement steps:

2. Downsize your life now. I'm a fan of the "tiny house" movement. This is a lifestyle strategy gaining in popularity. For a variety of reasons, the tiny house proponents live in 500 square feet or less. FYI network has a new television show profiling these lifestyle pioneers.

I'm not advocating that you join this tiny house cadre, but you may want to downsize if you're concerned about your financial future.

Ways to downsize include: renting a smaller apartment in a less expensive area, selling a large home and moving into a smaller one and selling a newer car and buying an older less expensive model. These major steps can cut thousands of dollars from your budget per year, which can be funneled into a retirement account.

3. "Binge save." There are some people who make it a point to save up to 40 percent of their salary. These so-called "binge savers" have elected to build up a large nest egg in order to give them more financial freedom. This extreme saving sounds drastic, but a version of binge saving may be a good idea for those who find themselves in their 40s or 50s without enough savings for retirement.

This extreme saving approach goes hand in hand with the second step. To make this lifestyle change more palatable, set a short-term goal. Save 20 to 30 percent or even more of your salary for several months. A drastic change may be more doable if you don't think you have to keep it up forever. Get creative and figure out what you can do without or make substitutions.

It will be difficult at first, but over time, you may find the reward of seeing your account grow quite motivating. You may be surprised at how much you can adjust your lifestyle in a short period of time.

If you keep up the change, great. If not, try repeating the binge saving regularly. Like any habit change, over time, the saving plan will become easier.

The best secret for binge saving is to have the money automatically deducted from your paycheck into your retirement account. You'll be less likely to miss the money if you don't have it in your possession.

4. Cautiously invest. If you're closing in on retirement and you don't want to binge save, you invest in the stock market, only to watch your money shrink during a stock market drop. Those within 10 or so years of retirement usually shouldn't have more than 40 or 50 percent in the stock market. And after this recent 5-year bull market, even that portion may be too aggressive.

Although interest rates are at historical lows right now, it's unlikely they'll stay that way.

Zvi Bodie, author of "Risk Less and Prosper" and investing professor at Boston University, recommends Government l (inflation) bonds for your secure retirement money. These conservative, government-issued bonds promise your savings will keep pace with inflation.

5. Say "no" to your kids. Kids do not need to cost an arm and a leg. If you work hard, you may feel like you need to overcompensate by buying more "stuff" for your kids. Or maybe you believe if your kids don't have as much as their friends, they will be at a disadvantage.

Many adults with older and adult children are still doling out the financial assistance. In truth, the children have many years in which to make their financial way. As adults nearing retirement, time is limited. Saving for your own retirement must be a priority.

Make the hard choices while you are still working in order to add to your lifetime income. It's great to spend with abandon while you have a regular paycheck. But are you willing to settle for a sparse retirement in exchange?

Barbara Friedberg, MBA, MS , is a portfolio manager, consultant, website CEO and author of "How to Get Rich; Wealth Building Guide for the Financially Illiterate." Learn more about money and pick up her newest free investing book at Barbara Friedberg Personal Finance.com.

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