I am disheartened. I am 60 years old and have only $15,000 remaining. I will receive 80% of my pension from the state of Massachusetts and will be able to retire in three years. What steps could I take now to boost my savings?Thank you for reading this post, don't forget to subscribe!
Without a doubt, $15,000 is a meager amount for retirement savings at the age of 60, and I understand your distress. Rather than focusing on the dwindling savings, consider reassessing your overall retirement readiness. You may realize that you are in a more favorable position than anticipated, or there may be better approaches to bridge the gap than just saving more.
Determining Your Retirement Income Needs
Begin by ensuring you have a clear understanding of the income required for retirement and comparing it to your current earnings. You may discover that you need at most the same income, but possibly even less.
An aspect that catches my attention about your situation is the 5% income tax in Massachusetts. However, state pension benefits are exempted, which means you will save 5% of your income right from the start, beyond your regular expenses.
A pension covering 80% of your current income is adequate and compensates for a significant portion of the “inadequate” retirement savings. Say you require 90% of your current income. If your pension covers 80%, you are already effectively there. (If you need assistance with retirement income planning, consider consulting a financial advisor today.)
Closing the Retirement Deficit
Increasing savings is certainly valuable, but I am uncertain regarding the practicality of significantly boosting your savings at this point. Without knowledge of your income and expenses, it is likely that the average person can only trim their budget to a limited extent. Prior to knowing your specific situation, there may be more effective means to address your retirement shortfall. (If you seek support with bridging the retirement savings gap, this tool can guide you to a financial advisor.)
So, what are these potential ways? Some considerations include:
Explore feasible strategies to permanently cut down your expenses, enabling you to meet your needs. Downscaling your residence or relocating to a more affordable area could potentially inject a significant sum back into your budget. This not only facilitates additional savings but also directly lowers the required retirement income.
While you are eligible for retirement in three years, is it mandatory? Each year of continued employment results in an additional year of income and reduces your reliance on savings. Furthermore, retiring at 63 would delay Medicare eligibility by two years, possibly elevating your healthcare expenses.
Maximize Pension Benefits
While I am not extensively familiar with the Massachusetts state pension system, initial research indicates that your pension is calculated based on your highest income over three or five consecutive years. Would prolonging your employment increase your base income? If so, it may be worth examining how extended employment could impact your final pension benefits.
Please note that since your pension is from Massachusetts, I have assumed that you have not contributed to Social Security. If you are eligible for Social Security, remember to factor this into your considerations as well.
Retire and Pursue Alternate Employment
Consider retiring from your current job and exploring different employment options, even if part-time. Despite seeming counterintuitive, this could be a prudent financial move, especially if the new job pays substantially less.
Here’s the rationale: If you are receiving 80% of your income through a pension, finding an alternative job that pays over 20% of your current income would put you ahead.
To illustrate, let’s assume you presently earn $100,000 annually. Upon retirement, you receive 80% of this amount – $80,000 – from your pension. If you take on a part-time role that generates $30,000, your total income actually increases to $110,000. (Engage a financial advisor to navigate through scenarios like this. Consider consulting an advisor now.)
Establishing a Solid Foundation
Undoubtedly, having greater retirement savings would be advantageous. While increasing it is crucial, there is no quick fix to overcome this. Nonetheless, an 80% pension serves as a sturdy income base for planning.
It might be more beneficial to focus on other aspects of your retirement planning. Restraining expenses, optimizing your pension, and seeking minimal supplemental income could yield superior outcomes than solely emphasizing savings.
Pointers for Retirement Planning
- A financial advisor can provide strategic guidance leading up to retirement. Finding a suitable financial advisor is seamless with SmartAsset’s free tool, which connects you with three accredited advisors in your vicinity. You can also schedule a free initial call with one of their advisors to determine the best match for your needs. Start the search for a capable advisor who can assist you in realizing your financial objectives.
- Social Security plays a pivotal role in most Americans’ retirement income strategies. Determining the optimal time to claim benefits is vital. SmartAsset’s Social Security calculator aids in estimating your benefits based on your planned filing time.
Brandon Renfrow, CFP®, is a financial planning contributor at SmartAsset, addressing reader inquiries on personal finance and tax matters. Do you have a question? Email [email protected], and your query may be featured in an upcoming column.
Please note that Brandon is not a participant in the SmartAdvisor Match platform and has been remunerated for this feature. Responses to some reader queries may be edited for brevity or clarity.
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