What If Your Retirement Savings Aren’t Enough?

After retirement, what if you discover that your retirement income won’t be sufficient to maintain your pre-retirement lifestyle? Many financial advisors recommend aiming for 80% of your pre-retirement income when you retire. This figure is based mainly on the fact that you’ll no longer be paying payroll taxes (e.g., Social Security, Medicare, etc.) in retirement, you’ll no longer be saving for retirement (e.g., TSP, IRA, etc.), and your costs are expected to reduce (at least some).

Starting to save later in your career, paying to put your children through college, or not budgeting and constantly spending more than appropriate are some of the reasons you may fall short. People often don’t start thinking about retirement until they’re in their 40s, giving them less time to save and less time for their funds to grow.

You can try various things to make up the difference, and this article will focus on two of them: 1) working longer; and 2) preparing to live on less. Neither of these options seems appealing, but if either allows you to enjoy your retirement for an extended time, it’ll be worthwhile.

If you want to work longer, you must enjoy (or at least like) what you do and have a relatively long life expectancy. Conversely, a person who considers living on less might detest (or at least dislike) their employment and may be doubtful about how long they would survive.

The National Bureau of Economic Research issued a report titled The Power of Working Longer in January 2018 that compares working longer versus preparing for retirement by contributing more to a defined contribution plan. They got stunning results. Working for 3 to 6 months longer is equivalent to putting an extra 1% of salary aside in a defined contribution plan for 30 years. According to the research, if a person waited until ten years before retirement to boost their savings, only one month of extra labor would equal the additional 1% they saved aside due to the shorter time for contribution growth.

What was the primary cause of the ability to work longer? That’s right, an increase in Social Security benefits. Most FEDweek’s TSP Investment Report readers were born in 1960 or after and have a Social Security Full Retirement Age (FRA) of 67. Every year a person applies for Social Security before their FRA, the decrease is 6.67% (for the first three years before their FRA) or 5%  (for any years above three). These reductions are implemented monthly (5/9 of 1% or 5/12 of 1%). So, if someone applied for Social Security at age 62, their payout would be 30% lower than if they had waited until their FRA.

Furthermore, working beyond one’s FRA leads to an annual rise of 8% until 70. A person filing for Social Security at age 70 will receive 24% more than someone retiring at their FRA. Additionally, in many instances, working longer will raise the pay basis used to calculate the Social Security benefit.

Ideally, you’ll have saved enough to replace 80% of your pre-retirement income with your FERS annuity, Social Security, and TSP. But if you haven’t already, you still have a chance to reach your target replacement level if you’re prepared to work a little longer.

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Bio:
After entering the financial services industry in 1994, it was a desire to guide people towards their financial independence that drove Aaron to start Steele Capital Management in 2013. Armed with an extensive background in financial planning and commercial banking coupled with a sincere passion for helping people, Aaron has the expertise and affinity for serving the unique needs of those in transition. Clients benefit from his objective financial solutions and education aligned solely withhelping them pursue the most comfortable financial life possible.Born in Olympia, Washington, Aaron spent much of his childhood in Denver, Colorado. An area outside of Phoenix, Arizona, known as the East Valley, occupies a special place in Aaron’s heart. It is where he graduated from Arizona State University with a Bachelor of Science degree in Business Administration, started a family, and advanced his professional career.Having now returned to his hometown of Olympia, and with the days of coaching his sons football and baseball teams behind him, he now has time to pursue his civic passions. Aaron is proud to serve on the Board of Regents Leadership for Thurston County as the Secretary and Treasurer for the Morningside area. His past affiliations include the West Olympia Rotary and has served on various committees for organizations throughout his community.Aaron and his beautiful wife, Holly, a Registered Nurse, consider their greatest accomplishment having raised Thomas and Tate, their two intelligent and motivated sons. Their oldest son Tate is following in his father’s entrepreneurial footsteps and currently attends the Carson College of Business at Washington State University. Their beloved youngest son, Thomas, is a student at Olympia High School.Focused on helping veterans and their families navigate the maze of long-term care solutions, Aaron specializes in customized strategies to avoid the financial crisis that care related expenses can create. Experience has shown him that many seniors are not prepared for the economic transition that takes place as they reach an advanced age.With support from the American Academy of Benefit Planners – an organization with expertise and resources on the intricacies of government benefits – he helps clients close the gap between the cost of care and their income while protecting their assets from depletion.Aaron can help you and your family to create, preserve and protect your legacy.That’s making a difference.

Disclosure:
Investment advisory services are offered through BWM Advisory, LLC (BWM). BWM is registered as an Investment Advisor located in Scottsdale, Arizona, and only conducts business in states where it is properly licensed, notice has been filed, or is excluded from notice filing requirements. This information is not a complete analysis of the topic(s) discussed, is general in nature, and is not personalized investment advice. Nothing in this article is intended to be investment advice. There are risks involved with investing which may include (but are not limited to) market fluctuations and possible loss of principal value. Carefully consider the risks and possible consequences involved prior to making any investment decision. You should consult a professional tax or investment advisor regarding tax and investment implications before taking any investment actions or implementing any investment strategies.