Salvage retirement with planning, not panic

You can feel the panic. Retirement is just around the corner and you haven't saved anywhere near enough. Now you face the prospect of scraping by on Social Security, perhaps with a small pension. Worse, you face the prospect of running out of money. This isn't how you dreamed of retiring. Now what?

It's never too late, says Dennis Filangeri, a certified financial planner based in San Diego. Here are a few pre-retirement and post-retirement planning ideas Filangeri offered that could help you salvage your retirement dreams.

• Prepare written budgets. Budget for pre- and post-retirement. This injects a dose of reality into your financial planning and helps you plan the following strategies.
• Rethink retirement. Do you really want or need to retire soon? This isn't a cop-out. Our concepts of retirement are changing rapidly. Some experts point out that age 62 or 65 can be an early age to quit working when people routinely live to age 80, 85, 90. Consider transitioning into retirement by working part time. Every year longer that you work—and save for retirement—will improve your financial nest egg and reduce financial needs for the time you are fully retired. Think of it this way: Would it be better to work two or three years longer in the job you're in now, or have to find another job after you retire when you discover you don't have enough money?
• Avoid "lifestyle creep." A retirement specialist writing in the June 2000 issue of the Journal of Financial Planning cautions against "lifestyle creep." It's not uncommon, he wrote, that in the last five years before retirement—when the kids are gone, the mortgage and college are paid off, and employment earnings are at their peak—people boost personal spending with cruises, country club memberships, even an expensive new home.
• Not only does this divert money from retirement savings, it increases the cost of retirement, assuming that you want to maintain that lifestyle. For example, say you take the extra money from increased earnings and reduced child-rearing expenses and put half of it into retirement savings and half into improved lifestyle. The retirement specialist estimates that if the cost of your lifestyle increases by one-third, the other half you put aside will increase your retirement nest egg by only 8 percent.
• Reduce expenses. Try shaving 10 percent or even 15 percent from your living expenses. If you don't have enough money when you retire, you'll be shaving expenses then, anyway. Better to do it before retirement and put the savings into your nest egg. Many households have "lazy" debt, such as high-interest credit cards or a home that could be refinanced. The budgets will help you here.
• Maximize retirement plan contributions. Once you maximize those vehicles, consider tax-deferred annuities, which have no contribution limits, or growth stocks, which don't kick out current taxable income. Consider extra contributions to the Thrift Savings Plan. The contributions may not qualify for a tax deduction, but the earnings will grow tax-deferred.
• Review investments. You don't want to invest too aggressively just before retirement, but you may not want to have all your investments in low-risk (and thus lower-earning) accounts, either. Most planners recommend that even retirees have some portion of their portfolio in stocks.
• Moonlight. It's usually better to work an extra job before retirement than afterwards. The money you make can be invested, perhaps in a tax-deferred account, resulting in a larger nest egg.
• Consider delaying Social Security. For every year beyond your normal retirement age and age 70 that you can delay taking Social Security benefits, the size of the monthly benefits that you collect will increase. However, this may not be a good strategy for people with shorter-than-normal life expectancies.
• Make use of your home. Move to a smaller, less-expensive home and invest the profits. Rent out a room for extra income. Consider a reverse mortgage.
• Withdraw from the right accounts. Often you can stretch your retirement savings by withdrawing first from the right accounts. Typically, that's a taxable saving account, which allows tax-deferred accounts to continue to grow faster. But not always. A Roth IRA conversion might make sense. Review your options with your financial adviser.

Zall, Bureaucratus columnist and a retired federal employee, is a freelance writer based in Silver Spring, Md. He specializes in taxes, investing, business and government workplace issues. He is a certified internal auditor and a registered investment adviser. He can be reached at miltzall@starpower.net.