When working longer is no longer an option, it is time to develop strategies to maximize your remaining resources. A combination of planning, adapting and downsizing may be the best course.
Evaluate the Situation
At age 60 or so, life has usually simplified. Children are gone by now and expenses have become more predictable. Since Social Security is still on the horizon, you must find ways to create income from what remains. A realistic draw-down strategy and a workable budget are critical to a comfortable retirement.
If your budget prohibits maintaining your prior lifestyle, expenses must be reduced. Many retirees enjoy creating economical solutions to everyday activities. Senior discounts abound while shopping for auto insurance and other products designed for seniors will lower expenses. Perhaps you could even cut the cord to cable TV.
Housing Options: Downsize, Reverse Mortgage or Line of Credit
Downsizing to a smaller, less expensive home is an option. You’ll save on mortgage, taxes, insurance and utility costs. You may also withdraw equity from the sale of your original home.
A reverse mortgage can be an option if you prefer to stay where you are and have substantial equity. You can remain in your home while the bank pays you a monthly payment to own your home after you are gone.
Tax Consideration for Retirement Accounts
Before Social Security starts and you have little or no taxable income, the early period is a great time to convert 401ks and Traditional IRAs into Roth IRAs. In doing so, you convert all your retirement assets into accounts from which future withdrawals are tax free. This minimizes the tax burden from the conversion.
Delaying Social Security
If your resources allow, delay Social Security as long as possible. Each year you delay beyond 62 increases your benefits substantially. And if you can wait until 70, the benefits increase by 8% each year past the defined retirement. If Social Security benefits are due for both individuals, it may be practical to draw from the lesser account at retirement age and allow the other to grow to the maximum at 70 years of age.
In the current low interest environment, payback on annuities is historically low. However, when interest rates rise, these insurance company-backed policies that you purchase can guarantee a fixed payout for the rest of your lives.
If you’re approaching retirement and concerned that you haven’t saved enough but know that working longer is out of the question, there are a lot of options to consider. Start with looking for ways to reduce your expenses. That will have the greatest affect. Hopefully, a combination of these strategies can make up for the difference.