The statistics are troubling…
10,000 Americans begin their retirement every day.
The Social Security Administration has said the SS Trust Fund will become exhausted by 2035, unless benefits are reduced, the retirement age is raised, or other solutions are put into action. (1)
76% of Baby Boomers are not confident they have saved enough for retirement. (2)
One third of retirees retire with mortgage debt. (2)
Women live substantially longer then men and yet have much less saved for retirement. (3)
Only 18% have more than $200,000 saved. (2)
56% have less than $10,000 saved. (2)
Many Americans have experienced reductions in pay and not been able to save as much as they would have liked since the Great Recession of 2008/2009. (4)
In addition, the Great Recession resulted in many workers in their 50s and 60s getting laid off, not being able to find comparable employment and choosing early retirement.
It’s not an optimal situation for many people. Adding to the stress on finances is the fact that people are living longer.
So, the question is how can we improve our retirement situation with the resources we have at our disposal?
Listed below are 5 strategies you can implement today to make the most of your retirement savings…
Let’s assume a retiree has $5000/month of expenses coming out of their account. Let’s assume they have social security income of $2500/ mo. As a result, they have to draw out of their retirement account $2500/ mo.
But what if a retiree could reduce those expenses… what impact would it have on their lifestyle and their savings?
First, examine expenses. Every month I see deductions come out of my account and wonder where is that going to? Subscriptions, contributions, fees… so many voluntary expenses we have are set on auto pay.
Let’s say we can eliminate 2 subscriptions and 1 charitable contribution, saving $100 each month.
This reduces the draw down to $2400/ mo. It leaves the additional $100 in the account, allowing it to continue growing. Over the course of a year that’s $1200, growing let’s say 5%. In 5 years that means the account will have an additional $6,630 than it would have otherwise had.
Second, take up cooking. Learning how to cook can have several positive effects. First, processed foods tend to be more expensive. Yes, they are easy to cook… pop it in the oven, put on Netflix and eat dinner 30 min later. But understand you are paying a price for that convenience.
What if instead of purchasing processed foods, you cooked from scratch. Many times, ingredients are less expensive, saving you money. You can control portion size resulting in less waste, saving you money. You can eat healthier, reducing health risks and your need for medication, and… you guessed it, you would save money you would have spent on health care costs.
I recently went on a trip to Maui. Everybody we talked to decried how expensive it is to live there, especially for food. When we went to the store, I wanted a ham sandwich… until I saw the cost. A loaf of bread was $10. A pound of deli meat was $10. I decided I didn’t really need a ham sandwich. Instead we bought a bag of rice, some eggs and a pineapple for a total of $4. I was able to create 3 different meals, and in the end felt much healthier eating fresh and local.
If the above-mentioned retiree decided to shop healthier, buy local, and learn to cook, they could cut a monthly grocery bill by over $150. That $150 in monthly savings would mean an additional $9,946 in their account after only 5 years.
By making both changes you can reduce your retirement account draw down to $2250/ mo.
Third, cord cutting. There are a number of technologies that allow people eliminate monthly services, like cable TV/phone, without having to suffer. By eliminating your cable bill, you can eliminate $200/ mo. That $200 saved over the course of 5 years is an additional $13,261.
By making all 3 changes you can reduce your retirement account draw down to $2050/ mo. This is a 20% reduction in expenses, without sacrificing on your quality of life.
Fourth, downsize your housing. A lot of retiree wealth is tied up in real estate. The 3 bedroom, 2 bath house with a big yard was great for raising a family, but for retirees not so much. Mortgages, upkeep, yard maintenance, repairs, and property taxes all drain retiree savings without giving much back.
By downsizing to a smaller house, a retiree can (1) access equity that has built up in the house, and (2) reduce expenses. Instead of spending $2500/ mo. on housing expenses, a smaller house or condo costing $1500/ mo. could create enormous savings.
Additionally, the capital gains resulting from the sale of the house would add significantly to long term savings and improve retiree liquidity.
By using all 4 strategies the retiree would reduce their account draw down from $2500/ mo. to only $1050/ mo. The savings of all 4 strategies over the course of 5 years is equivalent to almost $100,000.
By simply making better decisions and being conscious of expenses and cash flow you can dramatically improve your retirement situation.
One last strategy to improve the quality of one’s retirement is to use part of your portfolio to build Guaranteed Retirement Income.
By Using a portion of your retirement savings to create guaranteed retirement income retirees can address several risks that are beyond their control. There are programs that can help retirees reduce market risk, increase their retirement income and ensure that they don’t outlive their savings.
As retirement approaches retirees need to make proactive decisions to improve their long-term viability.
Please feel free to connect. I look forward to helping you make the most of your retirement journey.
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First Financial Group 150 South Warner Rd. Suite 120 King of Prussia, PA 19406
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Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). OSJ: 7101 Wisconsin Ave Suite 1200, Bethesda, MD 20814 301-907-9030 Securities products and advisory services offered through PAS, member FINRA, SIPC. CA insurance license #0I64535. First Financial Group is not an affiliate or subsidiary of PAS or Guardian. Guardian, its subsidiaries, agents, and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation.
2019-88935 exp 11/21