Articles

David P. Guzzetta, AFIM, CMFC®
Vice President, Wealth Advisor
[email protected]
941.366.7222 x50672

Determining how much income you'll need in retirement requires projecting the type of lifestyle you plan to have and when you want to retire. However, as you grow closer to retirement, you may discover that your income won't be enough to meet your goals. If you’re in that situation, you'll need to adopt a plan to bridge this projected income gap.

Delay retirement: 65 is just a number

One way of dealing with a projected income shortfall is to stay in the workforce longer than you had planned. This will allow you to continue supporting yourself with a salary rather than dipping into your retirement savings. Depending on your income, this could also increase your Social Security retirement benefit. You'll also be able to delay taking your Social Security benefit or distributions from retirement accounts.

Remember, too, that income from a job while receiving Social Security may reduce the benefit you receive if you are under normal retirement age – by $1 for every $2 you earn over $17,640 in 2019. Once you reach normal retirement age, you can earn as much as you want without affecting your Social Security retirement benefit.

Delaying retirement can also let you continue to build tax-deferred funds in your IRA or employer-sponsored retirement plan (or tax-free funds in Roth accounts). And if you're covered by a pension plan at work, you could also consider retiring and then seeking employment elsewhere. This way you can receive a salary and your pension benefit at the same time. Just make sure you fully understand your pension plan options.

Spend less, save more

You might also consider adjusting your spending habits to bridge the income shortfall. Start by preparing a budget to see where your money is going. Here are some ways to stretch your retirement dollars:

• Refinance your home mortgage if interest rates have dropped since you took the loan.
• Reduce your housing expenses by moving to a less expensive home or apartment.
• Sell one of your cars if you have two, and when you need a new car, consider buying a used one.
• Use the proceeds from a second mortgage or home equity line of credit to pay off higher-interest-rate debts.
• Transfer credit card balances from higher-interest cards to a low- or no interest card, and then cancel the old accounts.
• Ask about insurance discounts and review your insurance needs (your need for life insurance may have lessened).
• Reduce discretionary expenses like lunches and dinners out.

Reallocate your assets: consider investing more aggressively

Some people invest too conservatively to achieve their retirement goals. That's not surprising, because taking on more risk increases your potential for losses. But greater risk also has the potential for greater reward, and with life expectancies rising, retirement funds need to last longer. So if you’re facing an income shortfall, you may consider shifting some of your assets to investments that have the potential to outpace inflation.

The amount of investment dollars you might consider keeping in growth oriented investments depends on how long you have to save and your tolerance for risk. Still, if you are at or near retirement, you may want to keep some of your funds in growth-oriented investments. Get advice from a financial professional if you need help deciding how your assets should be allocated.

A new reality

Once you are within a few years of retirement, prepare a realistic budget that will help you manage your money in retirement. Think long term: Retirees frequently get into budget trouble in the early years of retirement, when they are adjusting to their new lifestyles. Remember that when you are retired, every day is Saturday, so it's easy to overspend.