Many Americans haven’t saved enough to finance more than a year or two of retirement. Some 42 percent of workers age 45 and older have total savings and investments worth less than $25,000, excluding the value of their home and traditional pension plan, according to a recent Employee Benefit Research Institute survey.
Delaying retirement is one way of compensating for a lack of savings. But that assumes that you will be able to find work in retirement. The number of unemployed Americans age 55 and older increased 331 percent between January 2000 and December 2009, according to a recent AARP Public Policy Institute analysis of Bureau of Labor Statistics data.
In the absence of job opportunities, many Americans will have to find a way to get by with less money. Some seniors are likely to downsize from homes to condos or apartments, move in with relatives, and couples can curb one of their cars. Older retirees also become eligible for senior discounts, age-related tax breaks, and Social Security and Medicare benefits, which can all be strategically maximized to reduce retirement spending.
One painless way to reduce costs is to scrutinize fees on your investments, both before and after retirement. Even a small difference in expenses can have a huge affect on your nest egg. For example, a 30-year-old employee earning $50,000 per year who saves 6 percent of pay and gets a 50 cent match on that amount would have $115,000 more in retirement if he or she switched from investments that charge 0.9 percent in annual fees to funds that charge 0.6 percent, according to recent calculations by human resources consulting firm Hewitt Associates which assume 8 percent annual investment returns. “Plan fees are eating up thousands of dollars of employees’ retirement savings without them even knowing it,” says Alison Borland, retirement strategy leader at Hewitt Associates.
For more ways to save, check out these 21 Ways to Cut Expenses in Retirement.