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Your Retirement

Retirement: Are You Ready?

A new study says no. Here's how to prepare.

A new report on how well prepared Americans are for retirement contains some encouraging news: Workers' prospects have improved somewhat since 2003, the year of the original forecast. Innovations in retirement-savings features such as auto-enrollment in 401(k)s have helped.

Don't break out the champagne just yet, however. The Retirement Readiness report from the Employee Benefit Research Institute finds that nearly half of boomers ages 56 to 62 are still at risk of not having enough retirement income to pay for basic expenses and uninsured health care costs.

There are smart ways to start preparing for retirement right now. Saving more is one, though the Retirement Readiness report points out that boomers might not have sufficient time left to put away enough money to fully fund retirement. Without a sizable nest egg, many retirees face the real possibility of outliving their retirement savings. Consider a combination of strategies to help close the gap.

Jonathan Pond: Are You Ready to Retire?

— Jamie Kingham/cultura/Corbis

Don't break out the champagne just yet, however. The Retirement Readiness report from the Employee Benefit Research Institute finds that nearly half of boomers ages 56 to 62 are still at risk of not having enough retirement income to pay for basic expenses and uninsured health care costs.

There are smart ways to start preparing for retirement right now. Saving more is one, though the Retirement Readiness report points out that boomers might not have sufficient time left to put away enough money to fully fund retirement. Without a sizable nest egg, many retirees face the real possibility of outliving their retirement savings. Consider a combination of strategies to help close the gap.

Reduce spending. Most of us spend too much. By taking the time to examine your spending habits, you can find ways to cut costs on everything, particularly big-ticket items like cars and vacations. Once you reduce your spending, have those savings automatically deducted from your paycheck or checking account and transferred into a retirement, savings or investment account.

Every little bit helps, not only during your working years, but also after you retire. If you can get accustomed to a more modest lifestyle during your remaining working years, the better able you'll be to enjoy a long retirement without fear of having to make major late-life cutbacks.

Keep working. Delaying retirement, even by just a couple of years, can increase your lifetime retirement income, perhaps substantially. Not only are you continuing to bring in income, but you're also likely socking away more cash in tax-advantaged retirement accounts. An alternative to delaying retirement is to retire gradually by reducing your work hours or switching to a part-time position after you hit your normal retirement age.

Delay benefits. Postponing the collection of retirement benefits, including Social Security and pensions, will usually increase annual payouts once they're ultimately collected. In general, avoid collecting benefits at the earliest possible age, unless you're in poor health or face an urgent financial need. Remember, however, that there are mandatory withdrawal rules on some types of retirement accounts.

Tap home equity. Downsizing your home or moving into rental housing can free up the equity you've built in a residence. It's a quick way to increase your nest egg in one fell swoop. Relocating to an area with a lower cost of living can stretch the retirement dollars you pocketed from selling a home. If you're considering a reverse mortgage, think hard. This type of loan can make sense when you don't have access to any other sources of funds, but the upfront costs are steep.

All the information presented on AARP.org is for educational and resource purposes only. We suggest that you consult with your financial or tax adviser with regard to your individual situation. Use of the information contained in this website is at the sole choice and risk of the reader.

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