It’s not easy to change your lifestyle. Retiring alone is a huge change. It’s dramatic enough to stop working, stop the routine, stop the personal connections let alone worry about the financial aspects of retirement. The switch from full time work to full time retirement is difficult even without having to worrying about affording a comfortable retirement for 30-40 years. But there are many Americans having to do just that. The problem stems from people who make little or no provision for retirement, expecting Social Security benefits to pay all their bills. It was never designed for that and rarely can it do so. Even those that do plan for retirement sometimes don’t save enough. Even though there are obvious cost reductions when you retire, for example the cost of commuting goes down, on the flip side other costs can rise, for example medical bills definitely rise with age.
While housing costs will certainly be reduced if you finish your mortgage payments before you retire there is little else that falls. In fact, in retirement you are on “permanent holiday” and for most of us we end up spending more when we’re on holidays not less. After working for so many years there are definitely things you want to do with free time. Many of those things will certainly cost extra money.
Some plan to use their real estate to help fund retirement; sell their home and then downsize or rent. That in itself is upheaval and there is always the risk of another recession which could mean that the real estate market could come to a halt and recovery could remain slow. That’s definitely not the time to sell but what if you need the money for retirement?
The bottom line is that as you move towards retirement you need to think about ways to decrease your expenses and boost your retirement income if, like the majority of Americans, you have not saved enough to date.
Worse still there is clear evidence that the level of credit card debt in society is disturbingly high. While you are still working you should prioritize this debt or negotiate a personal loan to pay off expensive credit card balances because it will become increasingly difficult to do it once you no longer have a regular pay check.
Even if you solve that particular problem you should still look at other income streams as well. You won’t simply be able to live happily with only half of the income you were receiving when you were working. What about these for a few ideas?
- You could start a small business, initially in your spare time but hopefully growing into some more serious once you retire. Sure this means you haven’t actually retired but owning your own business can be an exciting new phase in your life. Perhaps it involves turning something that has been a hobby into something that can actually earn you money? Maybe you can use your organizational skills to do that professionally; parties and events? There are lots of ways to earn a little extra cash and stay busy at the same time.
- Selling your home has already been mentioned as a way to get extra income in retirement. It means upheaval especially if you’re looking a cheaper parts of the country for relocation.
- You may decide to rent out a room in your house if you have a large family home which you are reluctant to leave even if the children are long gone. That may not appeal to you but if for example you have a basement with an external entrance you will be retaining your privacy.
- There is still a case for investing in stocks even though the recent history of the markets during the recession is not great. If you buy stocks that pay you dividends that will add to your disposable income.
Save, save, save
None of these ideas replace the basic way you should prepare for retirement, steady monthly savings. A solid budget with surplus cashflow that can be set aside towards building your retirement fund is the best way to prepare for retirement. Start small and increase your savings rate every month. Put raises and bonuses directly into retirement savings. The earlier you start saving the more compound interest can help your savings grow. Social Security will not provide you with a comfortable retirement and the sooner you accept that the sooner you will look to help yourself. Your future depends on it if you want to avoid an unhappy retirement.