Retirement

Securing a Healthy Retirement
The recent economic crisis challenged every Americans’ faith in the stability of our nation’s financial system. According to the McKinsey Consumer Retirement Readiness study, the average working household will have only 63% of the income needed to comfortably retire. How do Americans make up this “savings gap” when they don’t have extra income or sufficient retirement plans? We recommend you consider the six steps below.

1. Understand your Social Security Benefit
   Are you ready for the first day of the rest of your retired life? Do you know how much money you will need to retire comfortably? Before you make that decision, it is important to know where you stand. The general rule of thumb is that most people will need at least 70% to 80% of the amount earned during their working years to live comfortably in retirement.
   
   The first step to consider may be to understand your Federal Social Security entitlements. About three months before your birthday every year, you should receive notifications from the Social Security Administration informing you about the benefits you have earned as a result of your earnings history in the workforce. The notifications also inform you of the age in which you are entitled to use your social security benefits. You may want to keep in mind that taking your social security benefit too soon could result in a benefit that is 25% to 30% less than it would be if you waited until age 66 to 67 to accept your benefit.
   
   Further, according to the National Endowment for Financial Education, people who wait until age 70 would receive 132% of the monthly social security benefit they would have received had they accepted benefits at full retirement age (66 or 67 years of age). Regardless of when you decide to accept your benefit, it is wise to have a solid understanding of the monthly benefit you will receive in retirement. This way you’ll be better prepared to retire by knowing how much additional saving and income are necessary to retire comfortably. Information about your social security statement can be found at the Social Security Administration web site.
2. Review Current and Past Retirement Plans
   Your next planning step may be to check with your former employers to see if you have any funds in an old retirement plan to which you are entitled. You may be surprised to find that you had an old 401K with a former employer that is not allocated properly or not earning any interest. If your spouse is deceased, you may also want to check with his or her former employers for this same reason. If you do find a plan with a former employer, you may be eligible to roll those funds over into your current employer’s plan, or into a qualified Individual Retirement Account (IRA) that you can control while continuing to take advantage of the tax-deferred growth of the investment.
   
   Even if your former employer declared bankruptcy, federal law requires that your retirement assets be kept separate from your employer’s business assets. Therefore, the employer’s creditors may not make a claim on your retirement assets. The Employee Benefits Security Administration was developed to help individuals to better understand and exercise their rights under the law and, when possible, to recover any benefits to which they may be entitled. For more information, visit the U.S. Department of Labor web site.
3. Postpone Retirement to Create Supplemental Income
   It is important to enter your retirement years without credit card or any other type of consumer debt. So, postponing retirement to create additional income to pay off any debts you may have may be an option for you to consider. You may also want to consider supplementing your primary income with an additional job, or a small business venture.
   
   
   Work Multiple Jobs
   Taking on an additional job is another way that many Americans supplement income and create additional savings. According to the Department of Labor, multiple job holders totaled 7.6 million in 2008.[1] Taking on another job could provide the following benefits:
   

   • May allow you to compare benefits packages like healthcare and retirement plans so that you will be able to have some control over the amount you are paying into a plan.
   • The additional income may be used to add to your retirement savings or pay off consumer debts.
   • For some, having an extra job could mean that there is less time for frivolous spending, therefore reducing the amount of spending on recreation, which may create additional savings.

   Although it is not recommended to eliminate all the fun from your lifestyle, the extra savings in your retirement account may make the sacrifice worthwhile. Even if you don’t plan to work multiple jobs all year, there are seasonal positions that usually open up during the holidays. This may allow you to capture additional savings every year if planned correctly.
   
   However, before committing to this strategy, you must consider the possibility of layoffs, fluctuation in hours, and the affect that working multiple jobs may have on your family and personal health.
   
   Start a Business
   Another great way to supplement your income and perhaps have fun in the process is to start your own small business based on your hobbies and/or strengths. If you like animals, you may want to consider charging a fee for services that include the walking, grooming, or care of pets in your neighborhood. If you consider yourself a people person, and you have enough space in your home, you may want to consider taking on a roommate to help reduce your household expenses. If you’re good with children, you may want to consider babysitting or child care in your spare time. If you play an instrument or know more than one language, you may want to consider charging a fee for one-on-one tutoring sessions. There are many tools available to help you identify your strengths. One of them is a book called StrengthsFinder 2.0. It allows you to take a 20-minute online test that reveals your top five strengths. If you decide to buy this book, make sure you buy a new one to ensure you get a valid access code. You will need this to take the online test. For more information, visit strengthsfinder.com.
   
   You could develop flyers and advertise your services online or in laundromats, libraries, and community centers all around your area at a minimal cost. Furthermore, if you operate your small business from your home, you might be eligible for a number of tax benefits that could generate tax deductions resulting in additional savings every year.
   
   Most of the expenses that you incur for your home based business are tax deductible. But tax laws vary depending on where you live. Contact a tax professional to discuss the tax implications of starting a business and to find out what deductions you can claim for your home based business. Moreover, legal regulations and requirements vary by state for any business you are looking to create. Contact your local Small Business Administration or an attorney to learn more about legal requirements. Of course, there is always a degree of risk involved with starting a business, so you should evaluate whether this is a good option for you.

4. Reduce Unnecessary Spending
   One of the ways to pay down debt and contribute more to retirement savings may be to reduce your unnecessary spending. For example, you may be in a position to save money by moving to a less expensive location before you retire—especially if you were once in a much larger house or apartment because you had children who now live elsewhere. Further, there may be other aspects of your lifestyle that you may consider changing to create extra savings such as:
   
   • Clipping coupons
   • Making a habit to comparison shop for bargain items, gas, insurance needs, etc.
   • Walking or carpooling instead of driving by yourself to nearby locations
   • Eating out less
   • Reducing consumption of alcohol/cigarettes/luxury items
   • Dropping gym memberships and instead exercising with friends and family
5. Save Every Day
   While discretionary, most employers sponsor an employee retirement savings plan such as a 401(k). If your employer offers a 401(k) plan, you can have a fixed amount deposited directly from your paycheck each month. Your bank will show you how to set up automatic deposits into your savings account. Remember, a little proactive planning stretches your hard earned dollars. Remember, a little proactive planning stretches your hard earned dollars. Go to SmartAboutMoney.org and download the free “66 Ways to Save Money” article and visit SavingsNut.com for more savings ideas. Select those that work for you and develop your own savings ideas for everyday use.
   
   When planning for retirement, the decisions you make should greatly depend on their impact on your income, expenses, health care, long-term care, and any other important life situations you have. Once you have accounted for all of your retirement assets, use our Retirement Calculator and the National Endowment for Financial Education Guidebook to help Late Savers Prepare for Retirement. Good stewardship of financial resources begins with you. Save every day and talk to your financial advisor about creating your retirement plan.
6. Retirement on a Shoestring Budget
   If you are retired without enough financial resources to maintain your pre-retirement lifestyle, don’t despair. Lack of sufficient savings for a healthy retirement does not necessarily lead to living in poverty or less than desired conditions. Here are some alternatives for you to consider.
   
   
   Rekindle meaningful relationships with family and friends
   A son, daughter, or family friend may have a spare bedroom that will help you to reduce your monthly rental expenses. In exchange, you may offer to help with their mortgage or household expenses. A friend may connect you with an affordable caregiver to run errands or meet your medical support needs. The possibilities for this type of assistance could be endless. Think creatively!
   
   Locate your local family services agency
   Perhaps you want to keep your independence in retirement, but still need to reduce your living expenses. The community service agencies in your neighborhood may be of assistance to you. Community service agencies support seniors by providing information and resources that will help them live independently and safely in their own homes and communities for as long as possible. Community service agencies are excellent sources of referrals, and they could help you meet your needs in a variety of areas such as obtaining:
   

   • Discounts on utilities and prescriptions
   • Food assistance
   • Low-cost medical support
   • Low-cost home repairs and maintenance

   The Eldercare Locator is a public service that connects older Americans and their caregivers with information on senior services. Designed in 1991, the Eldercare Locator gives older adults, their families, and/or caregivers access to the vast number of community service providers for seniors by identifying trustworthy local support resources. To learn more about the Eldercare Locator, visit eldercare.gov.

   Consider becoming a foster grandparent
   For those who are considering caring for a relative, or a foster child who is in custody of the state, you may have access to state funds, through a foster care support or assistance program. The AARP lists three ways in which you could bring in supplemental income while you give a child a much needed opportunity to live in positive, caring, and supportive surroundings:

   • Adoption Assistance Payments are provided to caregivers who adopt a child with “special needs” from the welfare system. These programs are available in all states, and each state has its own definition of “special needs.” A child may be determined to have “special needs” if he or she has a physical or mental disability, is part of a minority group, or has been separated from a sibling group. For more on Adoption Assistance Programs, visit nacac.org.
   • Subsidized Guardianship is a financial assistance program for caregivers who obtain legal guardianship of children who have been through the foster care system, and in some states, for children who have not been through the foster care system. Thirty Five states and the District of Columbia provide this type of program. To find out if Subsidized Guardianship benefits are available in your state, visit the Generations United web site.
   • Foster Care Payments are provided in most states to caregivers who are kin to a child who was involved in a formal foster care program. The caregiver must meet certain requirements in order to qualify. For more information you can contact your local child welfare agency.

   Veteran’s Pensions
   If you are a wartime veteran who has limited or no income, you may qualify for a pension issued by the Veteran’s Administration. In general, to qualify, you must be 65 years or older, or if you are under 65, you may qualify if you are totally and permanently disabled. In addition to the Veteran’s Administration pension (VA Pension), you may also qualify for Aid and Attendance (A&A) if you need the aid of someone else to perform personal functions required in everyday living. Another supplement to the VA Pension is called Housebound, which may be granted if you have a single permanent disability evaluated as 100% disabling and are permanently confined to your immediate premises. In some cases, the spouses of veterans are eligible for these funds. There are a number of criteria that may affect your eligibility to VA pension benefits. To fill out an online application, or see if you qualify go to the U.S. Department of Veterans Affairs web site.

Start Today
It’s never too late to start saving or planning for retirement. Saving – no matter how little – breaks the chain of retirement poverty. Anyone can start saving for retirement, even with a few dollars or some spare change. Experts recommend that you save at least 10% of your income while you are working, placing it in a qualified retirement savings account. Be sure not to withdraw any of the funds before age 59 ½ to avoid paying a 10% penalty and missing out on future earnings.

Start the habit of transferring the amount you are saving to your retirement account automatically each month and watch your retirement nest egg grow faster than you imagined.

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[1] Department of Labor: Employment Status of Women and Men in 2008.