Saturday, 31 August 2024
by BD Banks
Image source: Getty Images
If you’re approaching retirement and haven’t built up much of a nest egg, you’re not alone. According to AARP, 20% of Americans over age 50 have no retirement savings. It can be a scary prospect and you may need to adapt your plans. But it’s possible — millions of retirees get by with Social Security as their only income source.
If you don’t have money in savings, an individual retirement account (IRA), or a 401(k), take these four steps today.
It’s human nature to want to avoid difficult situations. Unfortunately, that won’t help in this case. Work out the absolute minimum you’ll need to stay afloat financially in retirement. If you have no savings, you may be quite dependent on Social Security, and you’ll need to map out how you’re going to cope.
You can get an estimate of your benefits by going to your Social Security account online. To give you an idea, the average benefit in January 2024 was $1,907. Medicare will go some way to helping with your health costs. You may also qualify for additional support, such as housing and food assistance.
Depending on your current lifestyle, you may have to make some difficult decisions. That may involve drastically cutting your spending to adapt to a smaller budget. And if you won’t be able to afford your housing costs, the sad truth is that you may need to downsize.
One way to ease the pressure on your retirement budget could be to work for a few years longer than you’d planned. To do this, you may need to keep your skills up to date and maintain your professional networks. Perhaps you don’t want to — or can’t — stay in your current job, but there will be other opportunities. All the more so if you keep developing professionally.
You may have been looking forward to escaping the pressures of work, but it’s not all bad. One study by T. Rowe Price showed a lot of retirees have gone back to work, in part for the social and emotional benefits. Some are using remote work to earn money while also building a different work-life balance.
Every budget has two sides — what you spend and what you bring in. If Social Security is not going to give you enough cash to live like you want, see if you can get creative about other ways to make money.
According to MarketWatch, about a third of baby boomers have taken on side hustles. This might be anything from copywriting, coaching, tutoring, pet sitting, or working as a virtual assistant. If you can leverage skills from your career, you’re likely to be able to land a side hustle that pays more.
Some people going into retirement without a lot of savings do own their homes. If you have some extra space, consider renting out a room or even your garage to make extra money.
Think back: Have you ever had a job with a 401(k) benefit? According to a company called Capitalize, there’s around $1.65 trillion sitting in lost 401(k) accounts. If you’ve switched jobs many times during your career, there may be cash in an account you forgot about.
One of the best ways to find out is to check your paperwork and/or reach out to former employers. There are also a couple of databases online, such as the National Registry of Unclaimed Retirement Benefits.
If you’re still working, there could still be time to take advantage of tax-advantaged retirement accounts. Even a few years of tax benefits is better than nothing. If your workplace has a 401(k) plan, find out how you can contribute and whether it will match some of the money you put in.
If 401(k)s are not an option, there’s almost certainly an IRA to suit you. Traditional IRAs can reduce your tax bill today. Roth IRAs let you contribute post-tax dollars and make tax-free withdrawals in your retirement. You can open them with most top stock brokers. There’s a limit on how much you can contribute to your IRAs each year. If you’re over 50, you can put in a bit more in the form of catch-up contributions.
It can be extremely difficult to retire without any savings. And many of the measures you might take are easier said than done. It’s one thing to want to cut costs, but that doesn’t begin to take into account the emotional weight of, say, downsizing just as you’re entering your golden years.
Even so, if you only take one thing away from this article, let it be this: It won’t be easy, but you can make this work. Not only will you get some money in the form of Social Security benefits and other assistance, but your paychecks also don’t have to stop forever when you hit 65.
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