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I feel hopeless. I’m 60 and only have $15,000 saved. I will receive an 80% Massachusetts state pensionAnd be able to retire in three years. What can I do to increase my savings now?
– cheerful
There’s no doubt that $15,000 is a small amount of retirement savings for a 60-year-old, and I can understand why you’d be concerned about wanting to catch up. However, I would encourage you to reframe the problem you are facing. Instead of focusing on the fact that you have a low savings balance, think about your total savings Retirement Be prepared because that’s what it’s all about in the end. You may find that you’re better off than you realize, or that there are better ways to bridge the gap than to save more.
Start by making sure you have a good understanding of how much income you’ll need in retirement, and compare it to what you currently earn. You’ll likely find that you need, at most, the same amount of income you have now, but perhaps less.
The only thing that stands out to me about your situation is that Massachusetts has a 5% income tax. However, state pension Benefits are excluded, so you’ll immediately save 5% of your income that you would normally pay.
A pension that replaces 80% of your current income is great and fully makes up for a significant portion of your “lost” retirement savings. So, let’s say you need 90% of your needs Current income. If your pension replaces 80%, you’re close to making it. (If you need more help with your retirement income plan, consider this Match with a financial advisor today.)
A 60-year-old woman examines her finances to determine whether she can retire in three years.
Saving more is definitely a good idea, but I’m not sure how much you can realistically make up at this point. I don’t know what your income is or what your expenses are. But I know that there is only so much the average person can cut from their budget. Without knowing your situation, I doubt there are better ways to bridge your retirement gap. (But if you want more help filling your retirement savings gap, This tool can help you find a financial advisor.)
So, what are they? Some ideas that come to mind include:
Find realistic ways to permanently reduce your expenses that you can live with. If possible, downsize your home or move to an area with it Low cost of living You will likely put a significant amount of money back into your budget. Not only will this free up room to save more, but it will also directly lower the amount of income you need in retirement.
You say you’re eligible to retire in three years, but should you? Every year you work is one more year of income and one less year of withdrawal from your savings. Plus, if you leave at 63 you won’t Eligible for Medicare for two years, which may significantly increase your health care costs.
I’m not entirely familiar with the Massachusetts retirement system, but a quick look suggests that your pension is based on your highest income for three or five consecutive years. Will working longer increase the pay base for you? If so, you may want to consider the impact that working longer could have on your eventual retirement income.
Note that since your pension is from Massachusetts, I assumed you did not contribute to it Social security. If you are, in fact, eligible for Social Security, don’t forget to include that as well.
A 60-year-old woman preparing for retirement reviews her finances, including her monthly expenses.
You could also consider retiring from your current employer, and if you are able to continue working even part-time, try finding a different job. This may seem like a bad idea, but it can be a smart financial move even if you’re earning much less at your new job.
Here’s why: If you’re going to get 80% of your income as a pension, you’ll outperform if you find a different job and earn 20% more than you currently earn.
For simplicity’s sake, let’s say you currently earn $100,000 per year. You retire and receive 80% of your salary – or $80,000 – from your pension annually. If you work a part-time job and make $30,000, your total income will actually increase to $110,000. (A Financial advisor It can help you come up with scenarios like this. It is considered Speak with an advisor today.)
No doubt it would be great if you had more money put toward retirement savings. You should also take reasonable steps to increase it, but there is no magic formula to jump ahead. However, an 80% annuity gives you a solid income base that you can plan around.
Know that it may be better to focus on other areas of your retirement plan. Limiting expenses, maximizing your pension, and looking for even a small amount of extra income may yield better results than focusing on savings.
A Financial advisor It can help you make strategic decisions leading up to retirement. Finding a financial advisor is not difficult. Free SmartAsset tool Matches you with up to three vetted financial advisors serving your area, and you can make a free introductory call with your matched advisors to determine which advisor you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, Start now.
Social Security plays an important role in most Americans’ retirement income plans. Determining the optimal time to claim your benefits is crucial. SmartAsset Social Security Calculator It can help you estimate how much benefits to count on when you plan to apply for them.
Keep an emergency fund on hand in case you encounter unexpected expenses. An emergency fund should be liquid – in an account that is not at risk of significant fluctuations such as the stock market. The trade-off is that the value of liquid cash can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.
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Brandon Renfro, CFP®, is a financial planning columnist for SmartAsset and answers reader questions on personal finance and tax topics. Do you have a question you want answered? Email [email protected] and your question may be answered in a future column.
Please note that Brandon is not a participant in the SmartAsset AMP platform, nor is he an employee of SmartAsset, and was compensated for this article.Some reader-submitted questions are edited for clarity or brevity.
