Keep Your Dream Retirement From Turning Into a Nightmare

By Barbara Friedberg

Baby Boomers, is your retirement setup to be a dream or a nightmare?

Baby boomer Sean had a great management job for many years while his spouse, Suzi stayed home and took care of the family. They saved, a bit, in their bank savings account and a 401(k). Because Sean’s salary was above average, they lived well, took nice vacations and enjoyed life. But during his late 40’s Sean got laid off several times and found it harder and harder to land a new job. Fast forward several years and Sean is in his mid-50’s still working, at a reduced salary, and worried he doesn’t have enough retirement savings.

Keep Your Retirement Dream From Turning Into a Nightmare

According to a recent survey by the U.S. Government Accountability Office (GAO), approximately 50% of families age 55 or older don’t have any retirement savings. That means no 401(k) or IRA account. These same older adults also lack a workplace pension, defined benefit plan, or other savings.

Another retirement study, by Transamerica, mentioned that more than half of respondents surveyed, "say they ‘guessed’ their retirement savings needs, while 20% estimated their retirement needs based on their current living expenses. Just 10% used a retirement calculator or completed a worksheet."

Plan now so that you’ll be in the group that’s prepared for retirement. Even if you’re edging up to age 50, there’s still time to keep your retirement dream from turning into a nightmare.

Here’s a step-by-step retirement checklist to put you on sound footing for your golden years.

###1. Ask Yourself Some Tough Questions

Think about the following questions as retirement approaches.

Where will you live? Cost of living makes a tremendous difference in your retirement needs. Living in the Florida panhandle is more affordable than putting down retirement roots in sunny San Diego. According to aboutLife’s best place to retire tool, your cost of living can decrease by as much as 35% if you move from San Diego to Florida.

What is your current financial picture? Take an honest look at all of your current assets, including cash, retirement savings in work accounts, and any other investment accounts. Examine what you’re currently saving and where. Confront your debt liabilities as well. Do you have a mortgage, car loans and other types of loans and credit card debt? Also look at your monthly bills to see where you could cut current expenses to pump up retirement savings and investing.

Be honest with yourself and don’t be afraid to make some trade-offs.

###2. Start Killing Your Debt Today

This is the time to get rid of debt, and lift a weight off your shoulders before retirement. Consider this scenario: If you’re paying 15% interest on your current Visa card balance, and you’re earning an average 7% rate of return on your retirement account, then you’re actually losing 8% (15%-7%) by carrying that credit card balance. You’ll be better off paying that credit card debt as quickly as you can and putting your money towards retirement.

In the same beautiful way that saving and investing compounds over time, carrying debt has the opposite effect to reduce your wealth. If you have any debt with high interest rates (car payments, credit card debt, etc.) then, in most cases, you are paying more money in interest than you are gaining from the returns on your investments. Which means you’re losing money! This makes it difficult to get ahead with your retirement savings plan.

###3. Make a Date with Social

Make smart Social Security decisions now, to maximize your lifetime benefits. Once upon a time, people turned age 65 and started taking Social Security benefits. End of story. Not so today.

Most people know that the longer they wait to claim Social Security, the more money they will get. But very few people are aware that there are many different ways – often called Social Security claiming strategies - to maximize your total Social Security benefits, which result in tens of thousands of additional benefit dollars.

First step is to create your free account on the Social Security Administration’s official website, where you can verify your earnings, keep your information up-to-date and examine your current Social Security account. Next, use a free Social Security calculator to learn about your options and how to get the most from your Social Security benefits.

Finally, don’t miss the initial Medicare sign up dates. You may enroll as early as 3 months before your 65th birthday and registration continues until 3 months past your 65th birthday. Even if you’re still working and don’t think you’ll need it immediately, sign up sooner rather than later to avoid higher premiums.

###4. Adjust Your Lifestyle Now for a Happy Retirement Later

Sean and Suzi lived life spending most of what they earned. They had a lovely home, newer cars, annual vacations and forgot to plan for retirement in their 30’s and 40’s. Now that they’re in their 50’s and staring at retirement, they’ve got some lifestyle decisions to consider.

No matter how old you are, it’s never too late to plan for retirement. Don’t avoid retirement planning, even if you’re age 50 or older. There’s still time to improve your retirement picture and now is a great time to make some lifestyle changes.

Look at your largest expenses, the house and the car first. Next tackle the smaller budget leaks. As the kids move out, you probably don’t need as many bedrooms and common areas anymore. Downsizing is a great option to not only lower your monthly maintenance and utility bills, but also an opportunity to pocket the difference in your home equity.

Look at how buying a smaller home or becoming a renter can cut your housing costs and free up more cash for retirement. Consider this: If you take out a $165,000 15-year mortgage today with an interest rate of 4.5%, you’ll have a monthly payment of $1,262 for principal and interest. Compare that to a $250,000 15-year mortgage with a 4.5% interest rate with a monthly payment of $1,912. That’s already a $650 difference per month. Add on higher real estate taxes and homeowner’s insurance for the more expensive mortgage and you’ll probably be spending $1,000 more per month. On the other hand, you could downsize and put away that extra $12,000 ($1,000 per month x 12 months) each year into your retirement savings.

This is another strategy to free up retirement cash. Keep the older car, or sell the luxury model for a standard car with lower cost and maintenance charges. Even though this may be difficult, ask yourself whether the sacrifice is worth it in order to construct a more secure retirement.

Make the decision today to slim down living costs for a rosy retirement tomorrow. Be creative and cut expenses while maintaining your lifestyle.

###5. Think Like an Investment Advisor for a Wealthy Retirement

Use smart investment planning to maximize your retirement investing. You don’t need to be a pro to invest wisely. You can invest on your own with a target date fund or a few index mutual funds.

Contribute as much as possible to your workplace retirement 401k. This increases your retirement savings and gives you a tax break today. If you can’t swing the $18,000 max (plus $6,000 if you’re over age 50), then sock away at least enough to get the employer match, which is free money going straight into your retirement piggy-bank.

Keep investment fees low by investing in low cost index mutual funds. High fees can eat up your retirement cash. Even investing guru, Warren Buffett supports the low cost index fund investing approach.

Match your investment allocation with your risk tolerance and age. While in your 30’s and 40’s you may want to allocate 70% or 80% of your investment assets (or portfolio) in stock mutual funds. As you age, you’ll tilt your portfolio towards more bond mutual funds. By age 50 your portfolio may have 60% stock funds and 40% bond funds.

Rebalance your investments every year. For example, let’s assume your desired asset allocation is 60% stocks and 40% bonds. At year end, as bond values increase and stock values fall, your asset allocation changes to 50% in stock funds and 50% in bond funds. In January you rebalance and sell some bond fund shares and buy more stock fund shares to return your portfolio to its original 60% stock:40% bond mix. In the end, rebalancing may help you grow your retirement savings and reduce your investment risk.

##Write Your Own Happy Retirement Ending

Although Sean and Suzi got a late start, they still have time to adjust. They’re taking a big chunk of his salary and diverting it into their retirement accounts. They’re cutting their lifestyle spending and checking out different options to relocate.

Just like Sean and Suzi, put yourself and your own retirement first. Small steps in your retirement planning can make a big difference. You don’t need to spend hours planning for the future and adjusting every aspect of your life. You can take quick and easy steps instead. Just as there’s still time to save for retirement, you also have time to learn about your options, decide what’s best and start moving forward. One step at a time.

Enjoy free retirement planning help. AboutLife has many tools to help with your retirement planning. From Budgets to Social Security planning and Best places to live in retirement.