What If You Can't Afford to Retire?

Once again a report on Yahoo! Finance relayed the grim message that the majority of Baby Boomers have so little savings that many of them believe they will never be able to retire.  In the article entitled "5 Things to Do When Retirement Savings Fall Short" by Lisa Scherzer,  the author reported that 57% of workers have less than $25,000 put aside in either investments or savings.  In her article, she focused on ways to cut your housing expenses in order to afford to retire.  However, while this is a major area where Baby Boomers may want to reduce their expenses, there are many other actions they can take, as well.

Despite the alarming numbers we keep hearing that indicate approximately three out of five Baby Boomers cannot afford to retire, the purpose of this blog is to help people explore their options and discover the many ways they actually can retire, no matter how bad the numbers sound.  I want to help people have a fun and fulfilling retirement, regardless of their financial situation.

In fact, many of us will have to retire whether we think we can afford to or not.  While a low savings rate may cause us to feel that we will never be able to stop working, the truth is that most of us will need to leave our current jobs sooner or later.  Some types of careers have mandatory retirement ages; in other cases, health issues may force us to stop working full-time earlier than we expected.  Most of us cannot rely on the idea that we will simply work until we drop.  We need to have some sort of a plan.  Fortunately, there are actions you can take that make it possible for nearly everyone to retire someday, even if they have very little money in savings.  You may not be able to stay in your current living situation or drive the types of cars you currently own, but most people have discovered that there are a number of ways they can simplify their lives and still have a happy retirement.

Where to Make Cuts

The first thing we all need to do is figure out where we can cut our expenses.  The Social Security Administration recently reported that people who are over 55 generally split up their expenses in the following ways:

35 % to Housing, Utilities and Related expenses
14 % to Transportation
13 % for out-of-pocket medical expenses
12 % for food
21 % for state income taxes, travel, debt servicing, insurance, clothing, and other expenses
05  % for entertainment

Your personal expenses may be a little different.  The first step you need to take is to list how much you currently spend in the same categories and see how your expenses compare.

Cut Your Housing Expenses

One of the suggestions that was made by Ms. Scherzer in her article was to move to a state with a lower cost of living.   In particular, she recommended Florida, Nevada, Texas and Washington because those states do not have a state income tax.  In comparison, California has a 9.3% tax on the incomes of single people who earn more than $46,766 a year.  She also suggested that some people may want to move to another country with a lower cost of living.  These suggestions are being followed by thousands of Americans, as we have discussed in this blog in the past.  At the end of this article, you will find links to a number of articles about many of these alternative retirement locations.

However, not everyone wants to move somewhere totally new. As I mentioned in my last blog post entitled "Age in Place Villages Provide Resources in Your Neighborhood," many people wish to stay close to their families when they retire.  Therefore, pulling up roots and moving to another location may not be a desirable option.  In fact, if you spend a lot of money traveling to see your loved ones, there may not be much savings at all in a distant move.

This does not mean that it would be impossible for you to cut your housing expenses.  Here are some other suggestions:

Move to a much smaller and cheaper home
Rent out a room in your current residence
Refinance your current home to a lower monthly payment
Get a roommate, particularly a close friend or relative
Move in with your adult children (preferably in your own attached apartment)
Apply for Section 8 subsidized senior housing, if your retirement income is exceptionally low.

This last choice benefits many low-income retirees every year.  A friend of mine recently moved his mother into a senior apartment complex here in Orange County.  While rents for one bedroom senior apartments in the complex typically run $1300 a month, she will be able to substantially reduce her costs by using Section 8 vouchers.  She qualifies for this help since her Social Security benefits only amount to $1400 a month. 

We have other friends who are also benefiting from Section 8 vouchers.  Two recently retired Baby Boomers we know were both successful businessmen in their younger days.  However, due to financial setbacks, they both lost most of their money just prior to reaching retirement age.  Both of them applied for and received subsidized senior apartments in a safe community where they feel comfortable, independent and able to remain near their families and friends.

If you are afraid you cannot retire due to financial setbacks, contact the state housing authority in your area to find out if you qualify for assistance.  In addition, contact you local Social Security office to see if you qualify for Supplemental Security Insurance, food stamps, assistance with your Medicare premiums, or other benefits.  If not, you may want to try one of the other options listed above in order to cut your housing expenses.  Once you have cut your housing expenses, you will also want to reduce your other expenses, as well.

Cut Your Transportation Expenses

If you are one of those people who spend 14% or more of your monthly income on transportation, this is an area where you may be able to make cuts.  If you are a couple, do you need two, large cars?  Is there reliable bus service in your area?  Can you get by with a Smart Car, a golf cart or another inexpensive vehicle to use as your primary vehicle or as a second car for your spouse?  If you are no longer commuting to a job, you may discover that you can easily get by with a much less expensive vehicle to own and maintain.

Cut Your Medical Expenses

One woman I know is married to a doctor and they have always chosen to use a PPO insurance plan.  Recently, she told me that they had switched to a low-cost HMO Medicare supplemental plan because all the doctors they saw through their PPO were also listed in the HMO.  She saw no reason to keep paying the higher premiums. 

In my case, I recently joined Kaiser Healthcare.   Kaiser's Medicare Advantage plan is listed as a 5-Star program, yet the premiums are quite low.


Cut Your Miscellaneous Expenses

As mentioned above, one way to lower your cost of living after retirement may be to move to another state where there are no state income taxes.  However, another big expense that falls into the miscellaneous expenses category is debt servicing.  Are you still paying off student loans to put your kids through college; do you have large credit card bills, or similar expenses?  If so, you will want to pay off or renegotiate these loans so that you can retire.

You'll notice that I have not mentioned cutting your entertainment expenses.  Most retirees spend a minimal amount of money in this area.  What is the point of retiring if you cannot spend any money at all for entertainment?  While you don't need to go overboard, everyone should budget a little money in this category, even if it is just for a movie with a friend once a month.

Some other miscellaneous expenses that fall into this category may include items such as life insurance or long-term care insurance.  If you are single and no one depends on you, you may decide that you no longer need the life insurance.  On the other hand, long-term care insurance is almost certainly worth keeping.  It will allow you to have your future expenses covered should you need a home health aide or skilled nursing care in the future.  If you have been fortunate enough to already have one of these policies, I would not let it lapse.  It could save you a substantial amount of money in the future.

Get a Part-time Job

As mentioned many times in the past on this blog, there are a number of ways to earn money after retirement.  You might want to work part-time, give lessons, write books and articles, babysit, or run errands for your elderly neighbors.  You may also want to work in your current field, but cut back on your hours.  Any money you earn can go a long way towards having a more comfortable retirement once you retire from your current, full-time career.

Your Personal Retirement Plan

The point of this article has been to encourage you to not to give up on your dream of retiring from your full-time job in your late 60's.  Look through the suggestions that have been made here and pick a few that you think will work for you.  Begin to implement them as soon as you can, even before you stop working.  In this way you will have the confidence to know that one of these days you can take that giant leap of faith and retire from your job one day one day soon.

 
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You can find additional retirement information ideas by clicking on the tabs or pull down menu at the top of the page or checking out the information you will find in the index blog posts below.  Each of these articles contains an introduction followed by links to a number of articles related to that topic:

Gifts, Travel and Family Relationships

Great Places for Boomers to Retire Overseas

Great Places to Retire in the United States

Health and Medical Topics for Baby Boomers

Money and Financial Planning for Retirement


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