People are living longer these days. That is good news, of course, but it also means that you may have to provide yourself with a bigger cushion in retirement than you had initially intended. What’s more, uncertainty over future Social Security benefits as Baby Boomers continue to swell the rolls adds to the concerns. As a result, you could face a personal shortfall, especially if you incur unforeseen expenses from a medical condition or some other situation.
What should you do? The first thing is not to panic. Even if retirement is imminent, you may be able to make up lost ground quickly or take other steps to protect yourself. Here are several ideas to consider.
- Ramp up your retirement savings. For example, if you participate in a 401(k) plan where you work, you can generally defer up to $17,500 to the plan in 2013. This figure increases to $23,000 for those age 50 and older. Just a few years of contributions at or near the maximum level can significantly bolster your account.
- Work on the budget. Now that you are aware of a potential shortfall, you might want to dial down your expectations. Make realistic estimates about the income you expect to have coming in and the expenses going out. Although you will likely be paying less for housing (see below) and other items such as life insurance—especially if your children are already adults—consider the impact of potential increases in some expenses such as travel expenditures.
- Move to a smaller home. For most people, housing is the largest overall cost, representing on average more than one-third of overall spending. If your kids have flown the coop but you’re still living in the large home where you raised them, it may be time to downsize. In addition, you might want to move to a state with a different climate, taking state income taxes into account. Of course, various other factors—such as proximity to family and personal preferences—will come into play.
- Refinance your current home. If you decide to stay put, you should probably refinance an existing mortgage if you are paying a rate higher than the current rates. At the beginning of 2013, mortgage rates had reached historic lows. Even though rates have increased slightly since then, you may save tens of thousands of dollars over time by refinancing. Note that your interest payments will generally continue to be tax-deductible.
- Do not quit for good. Just because you have reached retirement age does not mean you have to stop working completely. If needed, you could pursue part-time employment, preferably in a line of work you enjoy. For some individuals, working full-time a little longer is also a viable option.
Everyone’s situation is different, so all of these ideas, some of them or none of them may be right for you. The most important thing to do is to assess your financial status and go from there.