Safety nets fray when times get hard. Retirements that once looked secure are hanging by a thread. The message for those in their 50s is clear: Mend the nets while there’s still time. Those in their 60s and 70s have fewer options. Still, there are ways of making sure your money lasts for life.
Here’s how to do it in 12 easy steps:
1. Get rid of debt. Nothing is more destructive of retirement than carrying debt when your paycheck stops. If you’re in your early 50s, start debt reduction now. Try to prepay your mortgage, too, so you’ll own your home free and clear. If you’re retiring now and prepaying would use up too much cash, consider the other extreme: Reduce your payments by taking a new, 30-year mortgage. It’s counterintuitive, but it works. Or use your equity to buy a smaller place that will leave you with no house payment or a much smaller one.
Don’t fall prey to the slimy promises of commercial debt consolidators. Here are two legitimate and low-cost places to go for help with debt reduction: The National Foundation for Credit Counseling (1-800-388-2227) and the Association of Independent Consumer Credit Counseling Agencies (1-800-703-8787).
In the worst case, consider bankruptcy. Never tap retirement accounts to cover unpayable debts. IRAs and 401(k)s are protected in bankruptcy. You’ll need those funds for a fresh start.
2. Build a better budget. When you’re thinking about retirement, nothing is more important than knowing how far your income will stretch. What will your expenses be? How much income will you have, including prudent withdrawals from your savings? Get your spending under control sooner rather than later. The longer you kid yourself, the greater your chance of running out of money.
3. Increase your savings. Save, save, save—even if it means changing your lifestyle or not helping your grandchildren with tuition. The kids have a lifetime to repay their student loans, but you’re running out of time. If you arrive at retirement with too little money, you’re cooked.
4. Wise up on investments. Among older people, there’s a stampede to safety. Money poured out of stock-owning mutual funds after the panic of 2008-09, and into funds invested in bonds. Many older investors still don’t want to take a risk in stocks.
But inflation and taxes will cut the real returns on your bonds and bond funds down to practically nothing. In your 50s and 60s—with 30 or 40 years of retirement ahead—you need to keep some money invested in stocks for long-term growth.
I don’t mean individual stocks. For safety reasons, get rid of them—every single share. You have no idea what is going on inside companies, including the one you work for. Even blue chips can be laid low—look what happened to the country’s leading banks. Are you holding on to individual stocks to avoid paying tax on capital gains? That tax is probably lower today than it ever will be. Bite the bullet, sell now and diversify.