Impending Social Security changes are forcing those who did not make the deadline in their age to rethink retirement income strategies. Two of the most popular strategies for increasing retirement income through social security have been eliminated. This has left those nearing retirement without much time to make up what could be thousands less each year in income.
Here are 4 Things you can do to keep your retirement plans on track and make up for the shortfalls which social security changes have created.
- Save more. Even if you only have a few years until retirement, maxing out your 401K and IRA plans will help you get there faster. Setting aside a minimum of 10% of your pay is a start, but if you are behind you may need to increase contributions to as much as 20 percent. Empty nesters may find an easier time achieving higher contributions.
Maximum 401K contributions are $18,000 per year, and $24,000 for those over 50. IRA contributions max out at $5,500 with an additional $1,000 available for those over the age of 50. Often you can contribute to both a 401K and an IRA, providing multiple tax deferred or tax free options for building your accounts quickly. Maxing out both accounts means you are setting aside over $30,000 per person. This can make up for lost time pretty quickly, if you can financially swing it.
- Eliminate Debt. Debt payments can be like a noose around your neck and wreck your retirement budget. Having $500 or $1000 in debt payments will require an increased income in retirement from $6,000 to $12,000 each year you carry the debt. While you are still working is the time to eliminate this debt, even if it means giving up luxuries, traveling less, and living on a strict budget. This is not a sexy solution but it is far better to cut back now, than to have to continue working well into your retirement years. If you are struggling with an overwhelming amount of credit card debt, it may be time to get a consult with a professional.
- Lower your cost of living. Eliminating debt is one obvious way to reduce the amount required to live comfortably. Moving to a smaller home or a city with a lower cost of living are available strategies. Combining households with adult children is also more common as our population ages.
- Develop a post career business plan. Generally, you think of businesses as having business plans, but every family can benefit from having one. Businesses develop a business plan to create a roadmap that is easy to follow and will help the company reach its goals. Families can benefit from a roadmap that defines where you want to be and then provides a map for getting there. This might include identifying sources of income, adjusting retirement dates to fit your circumstances, and deciding when, where, and how you want to live out your retirement years. Will it include travel or hobbies you never had time for? Will any of those activities bring in additional income to meet gaps in your monthly budget?
Re-running anticipated retirement numbers without the social security strategies being eliminated is the starting point. Social Security Administration has a convenient calculator that will give you a ballpark on what you can expect https://www.ssa.gov/planners/benefitcalculators.html.
Next, review year-end statements for existing retirement accounts and see where you can increase contributions for the coming year. Even small increase really starts to add up.
The sooner you address and face retirement shortfalls, the better you will be able to make up the gaps and gain the retirement you have always wanted.