Having Enough Money During Retirement

According to a recent Bankrate.com survey, 36% of the people in U.S. have no money saved for retirement. Even if you are saving, unless you are in the stock market, you are earning nothing on those savings. And, some of us are just cheap. So, whether you have no money, or have some money but want to make it last, this is information to help you have enough.

Work –

Of course, the best solution may be to keep working. The longer you work; the less money you will take out of retirement accounts or social security. I have also noticed, if I am working, I do not have time to shop.

Financial –

Social Security – Deciding when to start taking social security can be complicated. For a healthy single person, with no dependents under 18; delaying the start of social security increases the lifetime benefits you will receive. If you are married, disabled, have life threatening health issues, or dependents under 18; the answer is more complicated, and you should consult your local social security office. Also, there is also a very high marginal tax rate on social security payments if one works and takes social security. So, if you plan to work, it may be best not to start social security.

Medicare – Even if you are not taking social security, you can get on Medicare at 65. You should start the sign in process 90 days before the 1st of the month in which you will turn 65. Again, broadly, unless you never need a doctor, most people will save money by also buying a Medicare supplement plan and drug coverage.

Debts – You should plan to pay off all debts by the time you retire, especially a mortgage. If you have not paid off your mortgage, plan to keep working.

Early Withdrawals – If you have a deferred compensation plan or savings bonds or CDs, there are penalties and sometimes taxes associated with early withdrawals. And, they reduce how much you will have when you retire. They should be avoided.

Longevity Annuities – If you have enough money for now, but are worried about outliving your money, consider a longevity annuity. In a longevity annuity, if you buy it at say 65 and do not take any payments until you are say 85, and set it up where your only returns are the payments after 85; the payments after 85 could cushion you from running out of money. Besides earning some rate of interest on the money, you earn a return on the “gamble” by the insurance company you will not live until 85. If you die before 85, you will not need the money. If you die after 85, you can depend on a cash flow.

Reverse Mortgage – After you turn 62, you can do a reverse mortgage which allows you to get money out of the equity in your home or buy a different home, and you never have to make a payment. One negative is interest rates are higher than a standard mortgage. Your heirs can assume the mortgage at your death or decline to take the home and the mortgage.  This may be best used by those who are not worried about their heirs inheriting the maximum amount of money.

Housing –

Size matters – The size of your home obviously impacts the cost of your home. But, it also impacts utilities, insurance, property taxes, maintenance and many other costs. Moving to a smaller home, can free up capital from the sale of the home and reduce all those costs associated with home ownership. And, there is a deduction of up to $250,000 on the gain from the sale of a home when you downsize or move to a rental. In Houston, just reducing water, electricity and property taxes can offer substantial savings.

Location in the US – Living in small towns is cheaper than living in big cities. MSN Money and AARP have recently had articles listing the least expensive cities. Their lists include smaller cities and towns with no big cities. The suburbs are also cheaper than the inner city. The state in which you live also impacts your costs because of taxes and other living costs. Inman News recently calculated tax per person with the states on the coasts being higher than the states in the middle of the country. The National Association of Realtors recently listed the cheapest states relative to price of total home ownership cost as a percent of total income by state based on Census Data. All the least expensive states (lowest percentage) were in the Midwest and South.

International locations – Many people are opting to live overseas to lower costs. You can easily Google several lists of the best places for expatriates to live. Most of the lists which consider price and quality of life have Latin American, Asian and Central European countries. There are many of the countries that have a thriving expatriate community, with low costs and good healthcare.

Property Tax Deferral – In Texas, if you are 65 or over, you can request an indefinite property tax deferral (not pay property taxes until death or you sell the home.) In Harris County, you submit the request form to the Harris County Appraisal District. However, the interest rates are high (8%). So, this will reduce the amount you plan to leave your heirs.

Renting – It may be cheaper to rent than buy. Go ahead; add up all your costs of home ownership. In most places it is cheaper to rent, if you just look at cash flow.

Miscellaneous –

Go Carless – Once you retire, especially if you live in a smaller town or area conducive to walking, it may be easier for a couple to get by with one car.

Bargains – You have time now. So, travel, eat and buy when it is cheaper. Accumulate discount cards.

Good Luck.