What to Do If You Are Not Prepared for Retirement

Understanding Your Pre-Retirement Readiness Options

If you want to get real about retirement, there's an easy first step. Try one or more of those retirement readiness calculators that show you how ready you are to live for 20, 30 or more years on your current retirement savings.

I was pleasantly surprised by the experience of John Schwartz, the writer of a recent article in The New York Times, Retirement Reality Is Catching Up With Me. Schwartz tried to figure out how prepared for retirement he and his wife were, using tools from SSA.gov and Vanguard. The surprising thing was he was how upbeat the piece was. He admitted that he hadn't thought given enough thought to retirement, but he had been a good saver. The big discovery was that he was on track. You could feel his relief. Not all of us will be so lucky.

In the 2014 Retirement Confidence Survey by the Employee Benefit Research Institute, only 18 percent of workers reported feeling “very confident” they will have enough money to live comfortably in retirement. If you are in the other 82 percent, there are things you can do. This is why it's important to use a calculator that allows you to see what happens when you make adjustments to the time, savings rate, investment growth and withdrawal rate. I've used and appreciated the simplicity of Fidelity's MyPlan Snapshot, which anyone can access. Your own 401k plan administrator may have something similar. The important thing is the ability to make changes, because if you are not prepared for retirement, the solution will involve changing one or more of the following elements of your retirement plan while you are still working. 

1
Save and Invest More

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(c) Getty Images

One obvious way to bolster your future savings is to put aside a greater portion of your paycheck for retirement.

Part of the problem may be in the messaging. Experts (including yours truly) often recommend saving at least 6 percent of your paycheck, because that's usually around the amount an employer will match. A clearer recommendation is to start at 6 percent with a goal of increasing it each year. One Center for Retirement Research brief found that an average earner who starts saving at 35 and retires at 67 needs to save 18 percent per year, assuming a 4 percent return. Granted, that's a lot. But saving 10 percent or even 12 percent of your pre-tax paycheck should be a reasonable goal.   More

2
Increase Your Investment Risk

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A little risk can pay off in the long run. (c) iStock

Volatile or downward-trending markets can do damage to a portfolio, but not necessarily because the value of your investments goes down. What can be more damaging is the fear that occurs during these market shifts, which can cause investors to take unnecessary or poorly timed action. Moving money around in reaction to a market shift can cost investors money.

It's especially costly if one becomes so risk-averse as to move everything out of the market or into cash-like investments. To be sure, there is as much risk in doing this (inflation risk, interest rate risk, longevity risk) as there is investing in hot stocks. Many investors have too much of this type of risk and not enough equity growth risk in their portfolios. 

This is not to say that hot stocks should dominate an investment portfolio. Remember, it's all about striking the right balance and keeping that balance regardless of market moves. If you've strayed from your original plan, it's time to rebalance More

3
Work Longer

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(c) Getty Images

It may seem ironic that one way to make retirement easier is to keep working for as long as you can, but it's a sure bet for worried pre-retirees. Even if you opt to work fewer hours or shift into a different career, working longer will shorten the time you expect to live off of your retirement investments, and it allows you to continue to contribute to retirement investments for a few additional years.

The longer you put off work, the greater your potential Social Security income, as well. Individuals who wait until age 70 to claim can receive the maximum benefits for which they qualify. Couples, too, should coordinate when each member of the marriage will begin claiming Social Security.  More

4
Cut Spending in Retirement

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(c) Getty Images

If you had to live on half of your current salary, could you do it? That's the kind of question pre-retirees should be asking themselves: What is the minimum monthly amount needed to live on?

Once you've determined a number, give it a try to see if the number is realistic. It doesn't help to set income goals that are can't be sustained over time.  More