Americans are Outliving Retirement Savings

Eight Retirement Savings Strategies

San Mateo, Calif. - July 27, 2010 A recent study by the Employee Benefit Research Institute (EBRI) found that nearly one-half of Baby Boomers and Generation Xers are at risk for not having enough savings to cover basic retirement living expenses 1. Personal finance resource Bills.com recommends creating more realistic and aggressive savings strategies to close this anticipated retirement cash gap.

"Pension plans and Social Security are no longer secure retirement options for most Americans - leaving many workers to fend for themselves in retirement," said Ethan Ewing, president of Bills.com. "A healthy combination of budgeting, saving and leveraging of assets can turn most lean retirement budgets into nest eggs that will make it possible for retirees to realize the golden years they deserve."

EBRI’s Retirement Readiness Rating discovered that because many Americans are living longer, saving less, and planning poorly for health care costs, most will not have enough money to pay basic living expenses throughout retirement. To help combat this troubling trend, Bills.com shared eight strategies for making the most of retirement.

  1. Budget for Reality It is easy to plan for retirement using suggested averages and advice from friends and family, but this can often fall short of what is required for an adequate nest egg. If you envision a luxurious retirement full of travel and free from money worries, then do your research. Understand the implications of inflation, taxes, and actual living costs. Do not underestimate how much money you’ll need after leaving the workforce.
  2. Automate and Prioritize Savings A common excuse offered to justify avoiding retirement contributions is "next year." Enough "next years" will get you nowhere. It is imperative that you begin saving early and often. The power of compounding interest will make contributions in your twenties worth much more than the same investment in your forties. Automate savings so that you don’t have a choice. It is also imperative that parents put money into their retirement plan before funding a college savings program. You can always find loans for college, but not for retirement.
  3. Eliminate Debt One of the most important ways to enter retirement is debt free. Subtracting principal and interest payments from a fixed income is an easy way to expand debt instead of eliminating it. By paying off outstanding debt before you enter retirement, you can build a more accurate fixed budget and avoid the risk of falling behind or defaulting on payments.
  4. Diversify Savings There is no one magic investment vehicle for retirement savings. With a realistic retirement goal in mind, seek help from a variety of financial advisors to understand what options exist and which are best for your individual needs. Annuities, life insurance, 401(k) plans, and IRAs all present viable and unique options.
  5. Play Catch Up Older workers should take advantage of tax laws designed to help them save more money for retirement. Those workers who turn 50 in the calendar year and have met their maximum retirement contributions can make catch up contributions. For a traditional 401(k) plan, this can be an additional $5,500 in 2010 that is eligible for an employer match. Additional information is available on the IRS website.
  6. Social Security Buy Back If you are already retired or collecting Social Security, a little known strategy for collecting additional benefits is to cancel your current benefit level and then re-apply for greater benefits at a higher age. This is possible because the amount of benefits is calculated based on age - so the older you begin, the higher the monthly payout. In order to qualify, recipients must first pay back benefits they have received to date. For more information, visit the Social Security Administration website and download Social Security Form 521.
  7. Leverage Your Assets If you find yourself entering retirement without the cash reserves you’d hoped for but with some assets at your disposal, you can still enjoy a comfortable retirement. Individuals in search of cash who have a life insurance policy they no longer need can sell it in a life settlement. This can often return up to 300 percent of the cash surrender value on a policy 2. A reverse mortgage allows those 62 and older to receive monthly or a lump sum payment in return for the equity they’ve built up in their homes. For more information on a reverse mortgage visit the Bills.com Reverse Mortgage Center.
  8. Consider a Second Career While many people decide to work longer into retirement to save additional cash or delay tapping their nest eggs, many also look to second careers that are both personally and financially rewarding. A second career can be a good idea because you can match the demands and hours to supplement your retirement income, leaving you with both more free time and less financial stress. Examples of second careers can be working as a consultant, for a non-profit, or in a creative field such as writing.

Individuals with specific questions about retirement or how to best grow their next egg can use the Bills.com Ask Bill service to receive free, personalized answers to their questions.

1Jack VanDerhei, The EBRI Retirement Readiness Rating: ™ Retirement Income Preparation and Future Prospects, July 2010, EBRI Issue Brief #344, Employee Benefit Research Institute

2 Data Collection Report 2006, Life Settlement Association (LISA)