Shifting Into Retirement During The Recession

Of all the age groups affected by the recession, the baby boomers who are retiring face the harshest consequences. They have retirement portfolios that might have dropped anywhere from 20 to 40%. They don’t have extra years of income to make up the drop, unless they choose to stay working in part time jobs past their full retirement age. Health care costs are high. If that weren’t enough, the federal government has made it clear that there will probably be no cost of living increase in Social Security for the next two to three years. What are steps that need to be taken to make sure you won’t run out of money in your old age?

Review Your Alternatives

• Withdraw less - Now is the time to be more proactive about your retirement choices. If you were planning on a typical 4% withdrawal rate from your investments, you may have to downgrade that expectation for the first few years during the recession. If a smaller withdrawal rate doesn’t allow you to make up the difference in your retirement portfolio, it’s time to look at other alternatives you might have to retire, at least partially.

• Work more - Part time jobs may not produce work benefits, but they can supply you with supplemental income during an uncertain time. If you really want to retire, but can’t get the numbers to work out, then choosing to stay employed part-time is a viable option. If you can do that by simply reducing your hours at your current place of employment, it probably is the safest route to go. In the event that your semi-retirement doesn’t work out, you will still have your foot in the door and can request additional hours. The same isn’t true if you choose to work outside the career you’ve already established, but it can be a less stressful way to make a living too.

• Downsize or move - Review your retirement costs and either downsize or move to another state. Downsizing is the traditional way retirees are able to capture some of the equity stored in their home and use it for retirement. This may be harder to do, in light of the fact that many homes are underwater due to the recession. If you do have equity, there are more strategies available to you, from downsizing to reverse mortgages. These are all viable options that can help you restructure your retirement plan. Moving can provide tax advantages and help you to get larger digs, if you move to a place with a cheaper cost of living.

• Contribute more - If you are not yet retired, but looking at that option for the next five years or so, you can still ride out the drop by contributing more of your disposable income to your retirement fund than before. Just make sure that the portfolio is in conservative investments that won’t go on a wild roller coaster ride just as you decide to hand in your notice. By carefully reviewing all your options, you may find you are not is as bad a position as you previously thought and there are still ways to retire on the target date you originally planned.