Running out of retirement money? What to do

Running out of retirement money? What to do

Make the most of a disappointing nest egg with these strategies

 

You know you should save for retirement. How much, when and what strategies to use are exhaustively dispensed by financial planners, accountants, economists and personal finance columnists. But what if you're already retired? What if you're sure you're going to be around for a long time to come – but your money isn't?

It's a universal fear. In a 2010 Allianz Life Insurance Company poll of 3,257 people ages 44 to 75, 61 percent said they fear running out of money during retirement – more than they fear death.

As you've probably guessed, you don't have a lot of great options if you're in this situation. Gene Diederich, CEO and principal advisor at Moneta Group, a wealth management firm in St. Louis, lays out the path for most people:

"For those in such a situation, there is often not much they can do but be frugal with their spending, take a part-time job, consider a reverse mortgage and get with a financial planner to maximize the return on their remaining nest egg."

Still, those ideas – and the ones below – may help remove some of the tarnish on your golden years.

 

If you've been living larger, start living smaller. The most obvious strategy is to sell your house, especially if the home is paid off and you'll receive substantial income from it.

"I know it's hard to let go of the family home, or the home you have felt comfortable in for many years. However, the upside to getting rid of this big expense is the reduced stress and financial relief you will gain in knowing you have more cash now available," says Leslie Tayne, a financial attorney and debt specialist who runs Tayne Law Group, P.C., in New York City.

Maybe you need to sell your home and buy a smaller one. Or sell one car, if you and a spouse have two. Or perhaps it's medications that are killing your budget. Sandra Nohavicka sees a lot of that. She's a licensed clinical social worker at the Visiting Nurse Service of New York, the largest nonprofit home health care agency in the U.S.

"The average retired person over the age of 80 takes approximately 11 medications a day," Nohavicka says. She says anyone with high co-payments or those who have hit the 'doughnut hole' – in Medicare Part D, the point where medication is full price – should check out needymeds.com, which offers information about patient assistant programs. "Some of my patients get one or all of their high cost medications for free," Nohavicka says.

You may be able to turn back the clock

Not as far as you'd like, but if you're under age 70, and you started collecting Social Security within the last 12 months, "you can repay everything back to Social Security, and it'll be like you never claimed it," says Kenn Tacchino, a professor of financial planning at Widener University in Chester, Penn. "And then you delay claiming it until you're 70."

It makes a lot of sense to wait, assuming you're in good health and will be around a while to enjoy that regular stream of income. Here's why: If you claim Social Security at age 62, you'll receive 75 percent of your retirement benefits. Hold off until age 66, and you get 100 percent. But if you wait until age 70, you'll receive 132 percent of your benefits. Every year you wait up until age 70, you'll receive 8 percent more.

Earn supplementary income

Sure, you could try going back to work full time or get a part-time job, but what about renting out a room or sharing your place? It wouldn't necessarily have to be with a stranger – a friend or family member might know someone.

Cut off any adult children

It likely won't be a big money saver, but this is a good time to talk with adult children who are constantly draining your resources, Tayne advises. "It's time to be frank with the kids," she says. "You have limited funds and while you love and care for them, you can only do so much for them while ensuring you still have enough to support yourself."

Consider a reverse mortgage

You've probably seen or heard the commercials. Reverse mortgages allow homeowners to leverage the equity in their house to get a stream of revenue flowing back in, right now.

"They always get a bad rap because of the fees," Tacchino says. But he says reverse mortgages can still can be a good option for some retired people who want to maintain their lifestyle and remain in their home. You'd likely want to get a government-issued home equity conversion reverse mortgage, Tacchino says. There are essentially three ways you get income from your house, he says: "You can get a line of credit, receive your money in monthly payments or in the form of a lump sum."

On the plus side, he says, it might be the perfect solution for an individual or couple who want to live in their house as long as they can and don't mind that there won't be a home to pass onto the children.

Which isn't to say you should do this. "You're still having to maintain the house, pay taxes and utilities as well as other maintenance," Tayne says. "All of this is likely to make less sense further into retirement years."

But it depends on the person. You may be in your 90s and find shoveling snow or mowing the lawn good, healthy exercise. You may think it's better to pay someone else to do it. Or you may be nodding your head in agreement with Tayne. If you like the idea of a reverse mortgage, however, you would be smart to consult a financial planner, which leads to the next bit of advice.

Consult a financial planner

If you have ample assets but are afraid of what's to come, Tacchino says, "I would always suggest looking for a planner. Retirement can get complicated, and the right planner can help you manage your money so it lasts longer."

Or consult another professional

If you're truly broke, start getting into the habit of asking for advice from every service or organization you can think of.

For instance, Nohavicka suggests that any retired person who has served in the armed forces contact their local Veteran's Administration office, ask to talk to a benefits specialist and see what programs are available to help stretch your dollar.

"Some veterans are entitled to pensions, assistance with medical care, housing, home care services, nursing home care and even in some instances, housing," she says.

Nohavicka adds that many retired people she comes across are unaware of their retirement benefits, which may be dwindling, but some companies and unions still offer them. She offers the following advice for people talking to professionals about their retirement benefits, but it could apply to anyone looking for help: "Ask questions. You might be pleasantly surprised with what answers you get."

Retirement Strategies for the Self-Employed

Consistently saving for retirement can be particularly challenging for small business owners

Christopher Nelson is 44, and like many of his self-employed brethren, he has nothing saved for retirement.

He still has time. He also has plenty of reasons to think the future is bright. He is the chief financial officer of Glass Handbag, a company that sells high-end handbags outfitted with integrated light systems.

He runs it with Tamara Leuty, Glass Handbag's inventor and founder.

"I am hoping Glass Handbag takes off and creates the retirement I desire," Nelson says.

Of course, Nelson has ample reason to worry that he won't have the retirement he desires. According to the Small Business Administration, 50 percent of new businesses won't celebrate their five-year anniversary. Two-thirds won't reach the 10-year milestone. Glass Handbag started four years ago.

Nelson has another job as a real estate appraiser, making a little over $100,000 annually, but he says he hasn't managed to save anything for retirement. He put away $150,000, but that went to Glass Handbag. It doesn't help that he is shuttling between two cities with a high cost of living: Las Vegas and New York, where he and his fiancee are moving.

"I haven't had any retirement [savings] for about five years, and it makes me very worried. Sometimes, I don't sleep well at night," Nelson says. "The thought of knowing you can't survive without working, even for a short time, is very nerve-wracking."

Unfortunately, there are a lot of people like Nelson lying awake at night. Financial services provider TIAA-CREF recently surveyed more than 1,000 adults and found that 21 percent of those who hadn't retired had nothing saved for retirement. Forty-four percent had saved 10 percent or less of their current annual income. And yet 37 percent surveyed said they planned to retire before age 65.

How much should you be putting away? Most experts say at least 15 to 20 percent of your annual salary should be going toward retirement.

That can be a challenge for anyone, of course, but when you're self-employed, cash flow can be sporadic. Income from clients may not show up when expected, or not at all if business is bad. Even if you can pay your bills, extra money may go right back into the business.

"Many small business owners pay themselves last while they are building their business," says Thomas Goodson, founder and CEO of AmeriFlex Financial, a financial planning and wealth management firm in Santa Barbara, Calif.

Kelly Costello, who lives in Pittsburgh and owns puppycake.com, which manufactures and sells specialty dog treats, is emblematic of many entrepreneurs.

"I cashed in my 401(k) from my first corporate job shortly after the recession to keep my business afloat, and I have yet to put a dime toward retirement," says Costello, 28. "Right now, my priorities are pay myself a small salary, get out of debt … build a six-month emergency fund. Then I will work on building savings and putting it toward retirement."

What sort of retirement plan do I need? Financial advisors often suggest strategies that work well for self-employed people raking in money but not so well for those who aren't yet. And many self-employed people don't have anyone to advise them on their personal finances.

"If you are a small business owner with enough money for a financial advisor, you are one of the few lucky ones," Nelson says.

But if you can regularly put away money for retirement, consider starting a simplified employee pension individual retirement account, says Joe Jennings, investment director for PNC Wealth Management.

He says SEP IRAs are popular retirement savings vehicles for business owners and self-employed individuals.

"There are contribution limits for self-employed individuals," Jennings says. "From an investment standpoint, the vehicle is the same as any other IRA account and provides a great deal of flexibility regarding investment options."

The maximum amount a self-employed individual can put into a SEP IRA in 2014 is $52,000.

If you're spitting out your coffee and rolling your eyes, a Roth IRA is probably more your speed. The maximum contribution for a Roth IRA in 2014 is $5,500; if you're 50 or older, it's $6,500. To contribute, you can't make more than $127,000 a year if you're an individual filer or $188,000 if you file jointly.

Just don't put it off. There's a reasonable argument for delaying retirement saving if you're young and your business needs all of your cash, and it seems poised to grow. But if your company is more about making a good living for you and your family, not saving enough for retirement is a risk you shouldn't take.

David Cohen, 52, is an instructive example. He lives in Philadelphia, and about 20 years ago, after finding himself miserable as a pastry chef, he started an events planning business revolving around his love for classical music. An accomplished musician, he plays the classical and flamenco guitar, Chinese pipa and bagpipes.

For about two decades, Cohen and his wife, Tatyana, a dental hygienist, made an honest living, raised a son and put him through college. Thanks to guitarpoint.net, he was frequently booked solid in Pennsylvania and neighboring states.

Then in 2008, the Great Recession took hold, and corporations and individuals didn't have the extra money to hire classical musicians. Cohen's self-employment imploded, virtually overnight.

Cohen, now in his mid-40s, decided to attend Temple University. His family never had the money to send him to college, and he felt a diploma would help him become employable. He majored in tourism and hospitality management. But he had to suspend his studies a few times. Tatyana was diagnosed with cancer.

"On Valentine's Day, three years ago, she went into the hospital for chemo, and she never came home," Cohen says.

He now has a diploma – Tatyana urged him to finish school – but at age 52, Cohen is a combination of unemployed and under-self-employed, still performing but not enough. He's trying to carve out a career making hospitals more hospitable, an idea he formed while spending far too much time in hospitals. He consults at hospitals on a volunteer basis but hasn't landed a paying, permanent position yet.

The Cohens did put some money away for retirement, most of it through Tatyana's pension. That is gone now.

Cohen fully agrees that his story is a good argument for not putting off saving for retirement, and for saving as much as possible.

One moment Cohen sounds full of hope and promise about the idea of someday having plenty of income to live on during his golden years. "I'm not giving up because that's not part of my makeup," he says.

But almost in the same breath, he talks of being in his early 50s and having next to nothing saved for retirement: "It's definitely scary, and I will have to work the rest of my life."

Cohen says he sometimes goes to Sam's Club and watches the greeters. "I check out their technique and see what works the best," he says.

He envisions someday being a senior citizen and when dining out, "getting the higher

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Samuel Besong, PhD
Professor and Chairperson
Department of Human Ecology
Delaware State University
1200 North DuPont HWY
Price Bldg, RM#103
Dover, DE 19901
Phone: 302-857-6440
Fax: 302-857-6441

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