Getting close to retirement, but unsure if you can afford it?
Did you know that it takes 75% to 85% of your pre-retirement income in order to maintain your current lifestyle in retirement? What’s more—even though you don’t know how long you’re going to live—you should assume that you’ll need to have enough to live on for at least 25 to 30 years.
With the average monthly social security check at about $1,177 in 2011, it may be time to make some major changes to afford to retire comfortably. But often times we fail to take action, because we’re overwhelmed and don’t know where to start. What we’re really looking for are some tips about what works, from someone we can trust. So, we asked Wade Mayo, President and CEO of Life Insurance Company of the Southwest, to break it down for us; here are his tips for affordable retirement:
- Get help – Begin working with a trusted financial advisor: Seeking assistance from a professional can help you identify areas in your budget that can be freed up to allow you to save.
- Start saving more in a tax-advantaged plan: Tax advantaged plans like 401(k), IRA, 403(b) or 457(b) can allow you to defer taxes. Without any annual tax liability, your money grows larger than in a traditional savings account. Taxes are due at time of withdrawal which is often during retirement years.
- Select less risky investment: Market volatility in the past few years has helped deplete many people’s retirement savings. Moving to products that offer guarantees and safety can insulate you from the unsettled economy and ensure a predictable and reliable return on your investment.
- Get a paycheck for life with an annuity and a guaranteed lifetime income rider: Eliminate the fear of outliving your income by adding the optional benefit of a guaranteed lifetime income rider to your annuity at a nominal fee. The rider will provide income payments for the duration of your life, even if the policy’s accumulation reaches $0.
- Cut your spending and expenses: Cutting down on unnecessary spending and expenses today can allow you to save at a higher rate and accumulate more wealth in time for retirement.
- Downsize your mortgage: You can downsize your mortgage by buying a smaller home, condo, or refinancing. This may allow you to pocket hundreds more each month that are no longer earmarked for housing. Plus, as you age, a smaller home, that is one-level will be easier to maintain.
- Move to a less expensive market: Making the move to a more affordable market, for example, moving from California to Texas, has the benefit of allowing you to save on cost of living and pay less taxes.
- Work longer: While not exactly preferable, setting a later date to embark on retirement has the benefit of allowing you a few extra years to build your nest egg so that you can live worry free when you do leave the workforce.
- Consider a second job using whatever talents or skills you have: Leveraging your skills into another job can open up a stream of money that can help you reach your savings goals by your retirement date.
- Make sure you are doing something you enjoy – that’s what retirement is all about!
What are some of your tips to building a healthy nest egg? Tell us in the comments section below!