Yahoo Finanzen 10 Solutions to Your Retirement Fund Shortfall
Millennials may have plenty of time to put money aside for retirement, but the clock is ticking for those in their 40s and 50s. Fortunately, there are many options to make up for lost time, although some may require making sacrifices or adjusting plans.
"All is not lost, but your life may be a bit different in the short term," says George Clough, vice president of wealth management strategies at People's United Wealth Management in Bridgeport, Connecticut.
Clough is one of four finance experts who talked to U.S. News about their favorite strategies for late savers. Here are 10 options they recommend.
1. Stop spending so much. The best way to compensate for a retirement fund shortfall is to increase savings. To do that, many families need to decrease spending. Cable TV, mobile phone and Internet services are obvious places to start cutting. "So many people don't look on that side of the balance sheet," says Peter Eckerline, a wealth management advisor for Bank of America Merrill Lynch.
[See: 10 Costs You Can Eliminate in Retirement.]
Eckerline relates the story of a client who was divorced at age 48 and came to him four years ago with practically no savings. Today, she is well on her way to catching up and being ready to comfortably retire. "Budgeting is a big part of that," he says.
2. Take advantage of catch-up contributions. Once workers reach age 50, they can put more money aside in IRA and 401(k) accounts. However, few workers are able to do this.
The law allows older workers to put an additional $1,000 in an IRA and $6,000 in a 401(k) each year. Although contributing more to retirement funds may be difficult for some households, those with paid off mortgages or kids out of college may find they suddenly have an influx of available cash. "If you get past those college payments, that's the time to sock away more [for retirement]," says Angie O'Leary, senior vice president at U.S. Bank Wealth Management.
3. Open a spousal IRA. Another way to boost retirement savings is to open a spousal IRA. You can open up an account for a spouse even if that person doesn't work outside the home.
4. Fund a health savings account. People with high deductible health insurance plans shouldn't overlook their opportunity to open a health savings account. "HSAs are personal financial accounts just like your checking or savings accounts," says Steve Auerbach, CEO of consumer-directed, health-care-solutions provider Alegeus. "They are fully portable and can come with you if you leave your job."
More importantly, money deposited into the account is tax deductible, and withdrawals are tax free if used for qualified health care expenses. Once a person reaches age 65, they can withdraw and use the money for any purpose, although cash may be taxed in the same way as that taken from a traditional IRA or 401(k). "Consider your HSA in the broader context of your overall savings strategy," Auerbach says. "It may be advantageous to max out your HSA even before contributing to your 401(k)."
5. Invest your money more aggressively. This strategy gets a mixed response from experts who disagree on whether it is wise to move money into more aggressive investments to make up for a retirement fund shortfall. "I'm sure it works out sometime, but the markets are going to do what they're going to do," Eckerline says. If the stock market is strong, investors could make up a shortfall with investment gains. But if a recession were to hit, a worker may find they lose money and are unable to retire as planned. Still, both Clough and O'Leary say the idea could make sense for some workers, so long as it is done with professional guidance. "They need to understand that volatility is part of the price they pay," Clough adds.
6. Buy an annuity. Buying an annuity can be a good choice for those who want the stability of guaranteed income in retirement. "It is a way to create a pension for yourself," Eckerline says. Although annuities bring predictability to retirement, they can be costly to purchase. What's more, the return on an annuity may be less than what could be earned through other investments.
[See: 50 Affordable Places to Buy a Retirement Home in 2016.]
7. Add real estate to your portfolio. Purchasing rental property to generate income in retirement is another strategy worth considering to supplement meager savings. "There's nothing wrong with having real estate as part of your portfolio," Eckerline says. "But I wouldn't say let's take half your [money] and put it in real estate." Like an annuity, there is an upfront cost, and people need to carefully consider whether it is better to use their money for a property purchase or place it in another investment.
Rental properties also add a layer of complexity to life. "[People] overlook the degree to which they have to manage that real estate and how it cuts into time and even enjoyment in retirement," Clough says.
8. Use an inheritance for retirement savings. "We know a lot of baby boomers are going to get an inheritance," O'Leary says. Investing that money for retirement can be a quick and easy way to make up a potential shortfall.
9. Consider a reverse mortgage. While not ideal for every family, a reverse mortgage can be one way house-rich but cash-poor seniors can bring in steady monthly income. These mortgages pay seniors based upon the value of their home. But once the property owner passes away, the house is usually sold to repay the loan.
10. Delay Social Security benefits. A final option for those with insufficient retirement savings is to work longer and wait to claim Social Security benefits. Although the government allows people to begin receiving benefits at age 62, monthly checks could be a quarter less than what you would get by waiting until the full retirement age, which is currently 66. "Do you really want to reduce your Social Security [benefits] for the rest of your life," Clough asks.
[See: 10 Social Security Claiming Strategies That Work.]
For those who delay the start of benefits past their full retirement age, there is additional money to be had. A person's check gets an extra boost for every year they wait, up until age 70. "That's a great investment -- 8 percent each year," O'Leary says.
It's always best to start preparing early for retirement, but those who wait can still use one of these 10 solutions to fix a savings shortfall.
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