A low savings retirement is one in which you don’t have enough money in your portfolio to generate a comfortable retirement income. For example, let’s say you’re 65 and have $120,000 in a retirement portfolio. We’ll assume this money is in a pre-tax 401(k). It will not generate a livable income by itself. That doesn’t mean it’s too late to make plans, though, or that you can’t live a safe and comfortable life. But it will require some thought, sacrifice and planning.
Here are some things to consider in your planning. You can too Connect with a trusted financial advisor which can help you create and implement a suitable and custom retirement plan.
As you approach retirement, regardless of your situation, the first step is to take stock of your income and assets. What will generate income for you? What level of earnings is reliable? What assets can you turn into cash? What benefits, pensions or other payments will you receive? Are you eligible for Social Security benefits?
For example, say you own your home. In this case, a sale or a reverse mortgage can often generate a significant cash boost to supplement your savings.
In this case, we’re assuming you only have two potential retirement income streams: Social Security and the $120,000 401(k). So, we start planning from there. What income can you expect from each property?
As for your portfolio, it will depend on how you manage your money. This is one profile where an annuity can be a very strong option, as they can sometimes maximize the value of a relatively small portfolio. For example, say you start taking retirement at age 70 representative Annuity can generate $1,081 per month ($12,972 per year). While adjusted for inflation, this income is significantly higher than the roughly $400 to $600 per month you can afford. hope From 4% withdrawal strategy on the same amount.
As for Social Security, unfortunately this is a profile where you likely won’t qualify for maximum benefits. Social Security is designed to increase benefits for higher-earning families: The more you earn while working, the more you collect in benefits, up to a point.
Still, assuming you’ve paid into the program, your next step is to plan for your actual Social Security income. You can go to SSA and a Report On your actual benefits and credits, or you can use Smart Asset Calculator For a possible estimate. Once you know what you’ll get, you can start planning for that income. Your actual benefits will depend entirely on how much you earned during your working life, and for how many years. However, as an example, the average The retiree received $1,907 per month ($22,884 per year) in benefits.
If you get an average benefit check and buy a representative annuity, you may be able to plan for about $35,856 a year in partially inflation-adjusted income. A Financial advisor Can help you estimate returns based on your portfolio and risk tolerance.
Your next step is to figure out how you can maximize your income streams. In all cases, your best first step would be to delay retirement until age 70 if you can. This will increase both your profits and your savings.
First, waiting until age 70 will shorten your retirement. This will give you more years to live off your income, rather than your portfolio, and potentially give you a few more years to save.
Second, even by setting aside additional portfolio contributions, it can increase the value of your savings. For example, the representative annuity figure above assumes you invest now and collect payments over five years. If you collect payments in two years, at age 67, you can expect near Up to $843 per month. Or, if you invest your money in a mixed-asset portfolio with 8% growth, it could be till age 70. grow up Up to $176,000.
Most importantly, waiting until 70 will increase your Social Security benefits to 124% of their base level. If you can forgive the informality, this can be a game-changer. Take, for example, the average benefit payment of $1,907 mentioned above. If you wait until 70, that can increase to $2,364 per month ($1,907 * 1.24), or $28,376. Combined with a representative annuity at age 70, this could generate $41,348 per year of income.
Your next step is careful spending and tax management.
First, you will rely heavily Medicare For your health care expenses. This will be important, so make sure you understand your health needs and how they relate to this program’s coverage. In particular, be sure to purchase any necessary gap coverage in advance.
Depending on your state, you may be able to rely on Medicaid for this gap coverage. You will almost certainly need to rely on this program for any needed long-term care in your later years, so be sure to understand your state program’s asset and income requirements.
From there, it’s time to plan taxes. If it’s a standard 401(k) or other pre-tax portfolio, you’ll have to report the withdrawal as taxable income. But if your adjusted gross income is low, your federal income taxes are also likely to be relatively low. Still, between Social Security and portfolio income, you can likely make enough to pay around $1,200 to $1,500 per year in taxes.
Finally, it’s time to match your expenses to your income. How it fits will depend significantly on your current lifestyle and location.
Take our example above, where you wait until age 70 and generate $41,348 per year in combined income. A rule of thumb is that retirement income can typically pay for about 80% of a pre-retirement lifestyle, so this income should typically pay for a working lifestyle of about $51,685. ($41,348 / 0.8) In some parts of the country it’s not only stable, it’s quite comfortable.
So, watch your budget. Will it work for you? Can you wait until age 70, and can you afford to live your current lifestyle on about $40,000 per year?
If not, start looking at what you can cut. Often, the biggest fixed expense for any home is housing, especially if you live in an expensive urban area. Moving can potentially help with this. By relocating to a more affordable community, you can potentially lower your housing costs significantly. You’ll also likely deduct all of your living expenses, from bills to food. Finally, by moving, you can location-shop for a state with Medicaid laws that will help support your health care.
If you have low retirement savings, don’t panic. You have time and opportunities to make sure you are comfortable in your later years, but it will take some careful planning. However you choose to do this, however, it will be important to maximize the value of your portfolio. Managing costs and, potentially, relocating to an affordable community can be key.
A financial advisor can help you create a comprehensive retirement plan. Finding a financial advisor is not difficult. SmartAsset’s free tool You’ll be matched with up to three vetted financial advisors serving your area, and you can make a free initial call with your advisor matches to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, Start now.
Keep an emergency fund in case you incur unexpected expenses. An emergency fund should be liquid — in an account that isn’t exposed to significant fluctuations like the stock market. The trade-off is that the value of liquid cash can be reduced by inflation. But a high-interest account allows you to earn compound interest. Compare the savings accounts of these banks.
Are you a financial advisor looking to grow your business? SmartAsset AMP helps advisors connect with leads and offers marketing automation solutions so you can spend more time converting. Learn more about SmartAsset AMP.
