How to Retire Without Savings
Retirement withoutanysavings is technically possible, but it won’t be easy. The average monthly Social Security check is just over 00. It’s enough to keep an individual out of poverty, but just barely. If you’re without any savings at all, the best course of action is most likely delaying retirement so you can give yourself enough time to downsize and leverage the assets you have into a modest nest egg.
Maximizing Your Income
Keep a part time job.There are no great answers to the problem of how to retire without savings, but one possible solution is a partial retirement. After a lifetime of work, many retirees have considerable skills they can parlay into an income stream, and many employers like employing retirees because they're more dependable and loyal.
- If you’re close to retirement now, you might want to take some steps to develop a consulting business, particularly if you have a white collar skill set, such as engineering, law, or business.
- If your skillset is more blue collar, like carpentry or welding, consider how you might turn some of your skills into high quality craft products you can sell on the side.
Delay Social Security benefits.By delaying Social Security payments until you’re seventy, your monthly benefit increases to 132% of the original payment. After age seventy, however, there are no further increases.
- Another common strategy is to delay until age 67—that would get you 108% of your monthly benefit.
- Delaying Medicare doesn’t increase your benefit.
Invest your benefits check.If you elect to keep working after 65, taking your monthly Social Security benefit and investing it can be a smart strategy to maximize your payouts. There’s not a blanket rule; investing your monthly checks will only make good sense for a minority of retirees.It's not for everyone. To see where you fall, you just have to do the math.
- For example, assume John, at 65, draws a very average benefit of around 00 per month and makes ,000 per year in salary. His employer matches contributions to a 401(k) dollar for dollar up to 20% of his salary, which is agreatplan. If he only contributes the 000 he gets in Social Security to his 401(k), he would actually have ,000 in the 401(k) at the end of the year. If he retires at seventy and lives till he’s eighty, he’d have an extra 0,000, and that doesn't even count whatever accrues in the account through investments. If he had waited till seventy to retire and taken the 132% benefit instead, he would have only seen an extra ,400 over the same 10 years.
Rent out rooms in your home.Another way to increase your income during retirement is to rent out a room in your home. While it probably won’t cover all of your expenses, when combined with other strategies, it can really help defray some of your costs.
- For example, if you rented a bedroom for 0 per month, drew a 00 per month Social Security payment, and made another 00 through a part time job, your yearly income would be ,000. You won’t be rich, but if you had little to no mortgage debt, you would be able to maintain a comfortable standard of living.
Leveraging Your Assets
Consider a reverse mortgage.Reverse mortgages are a type of loan on home equity available to senior citizens.The borrower gets a loan for the value of the homeowner’s equity—the equity isn’t withdrawn directly. The loans are structured in the following ways:
- The equity can be treated as line of credit.Like a credit card, the borrower can use the credit in the home as needed (although there may be monthly maximums).
- The borrower can also a monthly payment for a fixed number of years. This is called a term payment plan. Even if the value of the home decreases, you’ll still get the same amount each month.
- You can also opt for a tenured payment plan. This is a lot like a term payment plan, except the term lasts until the borrower leaves the home.
- Even if payments under the reverse mortgage stop, the homeowner cannot be evicted from the home.
Sell your home at retirement.There’s certainly nothing to prevent you from selling your home outright and moving into something smaller. This strategy makes sense for a lot of people. Oftentimes a retiree is living in the same home where they raised their family, but with half the inhabitants.
- How much you spend to buy your new home will depend on how much you made on the sale of the old one. Nonetheless, try to find something as modest as possible. You want to maximize the cash you get from the sale of the home. That way, you can invest it or purchase an annuity.
Make maximum contributions to any retirement accounts you have access to.Even if retirement’s only a few years away, investing a little bit now can add up quickly. However, all retirement accounts are not created equal. You should invest in the following order:
- Invest in 401(k)s first. Since your employer is (probably) matching your contribution up to a certain limit, this should be the first account you contribute to. Anyone over age 50 can contribute up to 000 per year, and that doesn’t count employer contributions.
- Invest in IRAs last. Since there’s no matching employer contribution, invest in your IRAs last.
Minimizing Your Expenses
Eliminate debt.If you’re nearing retirement, do everything you can to eliminate all debt. Debt is a needless drain on your income as a retiree, and it prevents you from making the savings you need to make.
- One of the most popular ways to tackle debt is the “snowball method,” paying off the debt with the highest interest rates first.
Negotiate with service providers.Another tactic to reduce expenses in retirement is lowering monthly payments. You can try to negotiate with service providers (like cable companies and phone companies) yourself, or you can outsource it to a third party.
- For example, a company called Billcutterz will negotiate with all of your service providers to lower your monthly payments. You pay nothing up front; you just agree to let them take half of the savings for the first year.
Consider an RV retirement.One radical way some retirees have cut down on expenses is by selling their home and making an RV their primary residence. The modern generation of RVs are surprisingly spacious and comfortable, making RV living the ideal situation for the traveling retiree.
- Most retirees who make this choice pay cash for the RV, which drastically reduces monthly expenses with a chunk of cash leftover from the sale of the house.
Relocate.More and more retirees are making relocation a part of their retirement strategy. Relocating outside the US can provide the expatriate with a higher standard of living for less money than they could enjoy in the US. With innovations like email, Skype, and social media, staying connected with family member overseas is easier than ever.
- You’ll want to thoroughly research the legal and financial implications of any retirement destination, but some of the most popular expatriate destinations are Panama, the Dominican Republic, Portugal, and Italy.
Video: How to Retire Early: The Shockingly Simple Math
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