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What To Do if Your Savings Aren’t on Track for Retirement

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Unfortunately, it is not uncommon for Americans in retirement to live below the poverty line. This can be due to a variety of reasons, including a lack of retirement savings, inadequate Social Security benefits, and high medical or housing costs. Additionally, seniors who live alone or have disabilities may be at an even greater risk of experiencing poverty.

There are many reasons why someone may end up not having enough money in their retirement. One of the most common reasons would be long periods of unemployment, especially if they were not able to save enough during their working years. Medical expenses and debt can also be major factors, as unexpected costs can quickly eat away at retirement savings. Another potential issue is a lack of financial planning or investment knowledge, leading to poor investment choices or not starting to save for retirement early enough.

It is important to note that not being on track for retirement is a common issue, and if you are struggling, you’re not alone. However, there are steps that can be taken to prevent financial hardships. Starting to save for retirement early, making sound investment decisions, and seeking financial advice can all help ensure a more comfortable retirement. It is also important to be aware of potential risks and plan for unexpected expenses. By taking proactive steps, people can better prepare themselves for retirement and reduce the risk of living in poverty in their later years.

Increase Contributions

One of the most straightforward ways to ensure that you will have enough money to live off of in retirement is to increase your retirement contributions. By contributing more money to your retirement accounts, you can take advantage of compounding interest and potentially grow your savings faster. This can provide a larger nest egg that will give you more financial security in retirement.

Increased contributions can have a significant impact on your retirement savings. For example, if you start saving for retirement at age 25 and contribute $500 per month, assuming an annual return of 5%, you could have nearly $1 million by age 65. However, if you increase your contributions to $700 per month, you could have over $2 million by age 65. That extra $200 per month can make a big difference in your retirement lifestyle. With the recent trends of inflation, the more money you contribute now, the better off you will be in the long run.

Before you increase retirement contributions, there are a few things to keep in mind. First, make sure that you have enough emergency savings to cover unexpected expenses, such as medical bills, auto repairs, or home maintenance. You don’t want to have to dip into your retirement savings to cover these costs, as it can significantly impact your long-term financial security. However, if you put back additional funds in your retirement, you could potentially lower the cost of your Medicare premiums in the future.

Additionally, it’s important to understand how increasing your retirement contributions may affect your current budget. Contributing more to retirement may mean you have to cut back on other expenses, but it’s a worthwhile trade-off if it means having more financial security in your retirement years. It’s important to weigh the impact on your current budget and understand the contribution limits before making any changes. With proper planning and a long-term mindset, increased contributions can lead to a more comfortable retirement.

Look Into Financial Assistance Programs

Several financial assistance programs are available for seniors to help ease their financial troubles and needs during retirement. These programs can provide support for healthcare costs, food, housing, and other expenses. Some examples include:

  • Medicare Medical Savings Accounts (MSAs)
  • Supplemental Nutrition Assistance Program (SNAP)
  • Housing Assistance
  • Medicare Extra Help

Medicare Medical Savings Accounts (MSAs) are a type of health savings account that can help seniors save money on healthcare costs. MSAs work by combining a high-deductible health plan with a savings account. Seniors can use the funds in the savings account to pay for medical expenses, and contributions to the account are tax-deductible.

Supplemental Nutrition Assistance Program (SNAP), formerly known as food stamps, is a program that provides financial assistance to seniors or anyone under a certain income threshold to help them purchase food. Eligibility is based on income and other factors, and seniors can use the benefits to buy food at authorized retailers.

There are a variety of housing assistance programs available for seniors, including subsidized housing, rental assistance, and home repair grants. These programs can help seniors save money on housing costs and make their homes safer and more comfortable.

Medicare Extra Help offers payment assistance for Medicare Part D plans for those who may not be able to afford their full monthly premium. Medicare Part D is a prescription drug plan that can help seniors pay for the cost of prescription medications. It is available to all Medicare beneficiaries, and there are a variety of plans to choose from that can help cover the cost of different medications.

Refrain from Early Withdrawals

Early retirement withdrawals are penalized by the IRS in the form of an additional tax. In addition to regular income tax, individuals who withdraw funds from their retirement accounts before age 59 and a half are subject to a 10% penalty tax on the amount withdrawn. For example, if an individual withdraws $10,000 from their retirement account before age 59 and a half, they will owe $1,000 in penalty taxes in addition to any regular income tax owed on the distribution.

It’s important to avoid early retirement withdrawals unless in dire circumstances for several reasons. The penalty taxes can significantly reduce the amount of money you have available for retirement. In addition to the penalty tax, you may also owe regular income tax on the distribution, which can further reduce the amount of money you have available for retirement.

Additionally, withdrawing money early means that you lose the opportunity for that money to continue to grow and compound over time. Over a long period, even small amounts of money can grow into substantial sums due to the power of compounding interest. Early withdrawals mean that you lose out on this growth potential, which can have a significant impact on your long-term retirement savings.

 Open a High-Yield Savings Account

Putting funds you have for retirement in a high-yield savings account is a great way to increase interest and grow your retirement savings, even if you don’t currently have an employee-sponsored retirement fund. A high-yield savings account is a type of savings account that offers a higher interest rate than traditional savings accounts, which means that your money can grow more quickly over time.

One of the benefits of using a high-yield savings account for retirement savings is that it is a low-risk investment option. High-yield savings accounts are FDIC-insured, which means that your money is protected up to a certain amount, typically $250,000. This makes them a safe place to store your retirement savings, even if you are not comfortable investing in more volatile investment options like stocks or mutual funds.

While high-yield savings accounts offer a great way to increase interest on your retirement savings, it’s important to note that they may not provide enough growth to fully fund your retirement. As with any investment option, it’s important to consider your long-term goals and financial needs when deciding how to invest your money. 

Invest in CDs or Bonds

Certified deposits (CDs) and bonds can be good investment options for retirement savings because they offer a fixed rate of return and are considered low-risk investments. They can also help you diversify your portfolio and provide a source of income in retirement. However, it’s important to note that both simple investment options may offer lower returns than other investment options, like stocks. 

CDs vs. Bonds

CDs are a type of savings account that offers a fixed interest rate for a fixed period of time. When you open a CD, you agree to leave your money in the account for a certain amount of time, typically ranging from several months to several years.

In exchange for leaving your money in the account for that period, you receive a higher interest rate than you would with a traditional savings account. CDs are considered a low-risk investment option because your principal is typically FDIC-insured, which means that your money is protected up to a certain amount.

Bonds on the other hand are debt securities issued by the federal government, municipalities, or corporations. When you buy a bond, you are essentially loaning money to the issuer for a certain timeframe.

In exchange for your loan, you receive regular interest payments and the return of your principal when the bond matures. Bonds are considered a low-risk investment option because they offer a fixed rate of return and are typically less volatile than other types of investments, like stocks. Bonds can be a good option for retirement savings because they can help you diversify your portfolio and provide a steady source of income in retirement. 

Liquidate Non-Essential Assets

Liquidating non-essential assets means selling off assets that are not necessary for your immediate needs, such as stocks, secondary vehicles, and other non-essential assets. The process of liquidating these assets can increase your cash flow, which can be particularly useful for retirement savings.

The first step in liquidating non-essential assets is to identify which assets you can sell. This may include stocks, bonds, mutual funds, secondary vehicles, real estate, or other investments. You’ll want to consider the tax implications of each asset, as selling some assets may result in capital gains taxes or other fees.

The process of selling non-essential assets can increase your cash flow, which can be particularly useful for retirement savings. However, it’s important to note that there may be tax implications for selling non-essential assets. For example, if you sell stocks or mutual funds, you may be subject to capital gains taxes. Similarly, if you sell real estate or other investments, you may be subject to taxes on any gains from the sale.

Work Longer

Working longer and contributing to an employer-sponsored retirement fund longer can be an effective strategy for increasing the amount of money you’ll have for your retirement. By continuing to contribute to an employer-sponsored retirement fund, such as a 401(k), you can take advantage of tax benefits and compound interest, which can help your savings grow over time. Additionally, if you work longer, you may be able to delay taking Social Security benefits, which can result in higher monthly payments when you do start taking benefits.

In the U.S., the current full retirement age is 67 for those born in 1960 or later. This means that if you choose to work longer and delay taking Social Security benefits, you could potentially receive a higher monthly benefit when you do start taking benefits.

While working longer can be a good way to increase your retirement savings, it’s important to balance this with your personal health and well-being. Working longer can be stressful and may take a toll on your physical and mental health. Be sure to listen to your body and take care of yourself, even if it means reducing your work hours or retiring earlier than planned.

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