Help! I haven't saved enough to retire

John W. Schoen • Profile • E-mail

This week, we heard from two readers with radically different approaches to retirement planning. Gene in Iowa has been living large, but at 60 he's just realized it's going to be tough to retire on what he's managed to put aside. Peggy in Alaska, on the other hand, is sitting on a sizable nest egg, but doesn't know what to do with it.

I recently turned 60. I have a small retirement fund with the company for which I work, roughly 27 to 28K at this point. I DO NOT want to work past 65 or 66. Is there any way to turn my financial mess around? I have never seriously thought of retirement and the need for money until recently. My philosophy was spend it if you've got, because you can't take it with you. Not sound financial thinking. Is there any hope?
— Gene H. Urbandale, Iowa

There’s always hope. But depending on your current living standard, it may be difficult — if not impossible — to stop working at 66 with $28,000 in savings. The only way you’ll know for sure is to sit down and work out a plan. The process is fairly simple:

Figure out how much you think you’ll need to support yourself. If you don’t have a monthly budget, sit down and make one — you’ll need to stick to a budget even more carefully once you stop working. Some retirement planners use rules of thumb like 70 percent of current spending, but only you can decide how much you really need. You may have to make some fairly drastic changes: some people end up moving to a cheaper part of the country to stretch their spending power, for example.

If you’re currently covered by health insurance at work, try to figure how much you’ll need to budget for health care expenses. Even though you’ll be eligible for Medicare, it doesn’t cover all health costs. The rapid rise in health care costs is one of the leading causes of bankruptcy filings among Americans over the age of 55.

Once you’ve got that monthly spending number, find out how much you’ve got coming from Social Security — by contacting them and asking for a statement.  This will show how much you’ve paid in over the years and estimate how much you’ll collect. The longer you wait to start collecting, up to age 70, the higher the monthly amount you’ll get for the rest of your life.

You should also consider how fast you expect your spending to increase. No one can reliably forecast inflation for the next 30 years, but your Social Security check will go up each year based on the average cost of living. Still, depending on your budget, your costs may rise more quickly.

If your estimated budget is higher than your estimated Social Security check, you’ll need to make up the difference. That means either getting by on less (go back to your budget), or making more money — or both. The most obvious way to close the gap is to continue working past 66, despite your strong desire not to. You may not have to work full-time. And a lot of retirees find they get bored doing absolutely nothing and miss some form of paid work.

In any case, you’re in good company.  As a group, baby boomers are delaying retirement — in many cases because they can’t afford it. But people are also living longer and are in better health than past generations, which allows them to work longer than their parents’ generation.

Even though you’ve put it off this long, it’s never too late to come up with a retirement plan. You may not like the choices you’re presented with. But it’s better than having no plan at all.

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