Given the events of the past year or so, many people find themselves in uncertain situations. According to the New York Times, retirements increased during the pandemic. 17% of Americans aged 55 to 64 entered retirement, and 65.6% of people 65 to 76– each figure demonstrates an increase from the previous 12 months.
Unfortunately, many Americans haven’t saved enough money to maintain their standard of living upon early retirement. Financial planners say that even those who have sizable retirement accounts are a few bad choices away from running short of money.
Here are a few things you can do if you find yourself approaching early, or unexpected, retirement.
Create your retirement budget
Add up your expenses and look for anything you can trim. Unlike a regular monthly budget, be sure to include any variable expenses such as car repairs that could potentially arise within the next few years.
Experts say that one expense that you shouldn’t cut is health insurance. Typically people are eligible for Medicare at age 65, so be prepared to pay for coverage until then. In 2020, the average cost for health insurance per month was $456 for an individual and $1,152 for a family.
Tally up all income sources
If you have a workplace retirement account, you may have to decide what to do with it, like roll a 401(k) into an IRA or take a pension.
These situations are complex and do not have “one-size-fits-all” solutions. Consider talking to a financial planner before finalizing anything. Many financial planning organizations offer free sessions for those whose incomes were impacted by the pandemic if that applies to you.
Remember, taking large amounts out of your retirement funds early into retirement can exponentially increase the odds you’ll run out of money. History indicates that a 4% withdrawal rate has allowed savings to last for a 30-year retirement. You might consider a more conservative approach– starting with a withdrawal rate of 3.5% or even 3%.
Another option to consider is part-time work. Having an income stream can reduce the drain on your savings– and the emotional drain on you– and may even provide access to additional benefits like health insurance.
Make informed choices about Social Security
Social Security has the potential to be your most substantial source of income during retirement, and experts indicate that most people could maximize their checks by delaying their applications. While this isn’t possible for everyone, financial planners recommend utilizing other retirement funds first before drawing on Social Security.
There are free Social Security calculators available, like this one from the AARP.
Weigh the pros and cons of downsizing
If your expenses outweigh your income, you may have additional options. If you own a home with substantial equity (at least 50%) and are 62 or older, you may want to consider a reverse mortgage. Otherwise, you might decide to sell your home and downsize to a smaller dwelling.
Financial planners say that some clients discover they can live prosperously on less money by moving abroad. Linda Rogers, a CFP from San Diego, says that Portugal is a popular destination.
Becoming an ex-pat isn’t for everyone, especially during a time with travel restrictions. But if you’re looking for an adventure during your golden years, it might be a good option.