I Can’t Afford To Retire

I Can’t Afford To Retire

Are you close to retirement age? Maybe you’ve already reached that so-called magic number when you’re supposed to be able to relax and take it easy. What I really want to ask is if you’re looking at or have achieved an age somewhere between 66 and 70 years (maybe more???), are you thinking I can’t afford to retire?  If you are, it may not be true.

Most people overlook a number of options that can lead to retirement. If you’ve been thinking you can’t afford to retire, keep reading. I’ll give you some suggestions that can help you claim (or enhance) your retirement.

I Can’t Afford To Retire

Why can’t you retire? Is it because you have too much debt or because you won’t have enough income? Debt is different than the lack of income.

If you have debt, you could pay it off. Generally, debt requires that we make monthly payments. If those monthly payments were gone, it’s possible that your retirement income would be sufficient.

If you don’t have enough expected income (from Social Security, savings, and investments) to go into retirement, you still have several options. I’ll address those shortly, but first there is something essential you need to do.

Make A Plan

Regardless of the state your finances are in at the moment, make a plan and set some goals. This requires you to be honest

with yourself. You know what you’d like your financial situation to be, how does an analysis of your current situation compare? Many of us could benefit by developing (and following) a plan with a series of goals designed to increase the amount of money available to us after retiring. With proper research and self-education, a person can put together such a plan himself; this is also the discipline of professional financial planners.

The earlier in life a wealth-building plan is instituted the more effective it can be. But, as I’ve said, there are other/additional issues you can address that may help you eliminate “I can’t afford to retire” as your stock answer when asked about retirement.

Ideas To Help You Prepare For Retirement 

What follows is a list of things you can do to improve your finances. Because situations vary, these are not necessarily in an order of importance. (Even if you have already retired, you may be able to use some of this information.)

Social Security

Many people look forward to collecting Social Security. After all, most of us feel like we’ve contributed a considerable

amount of money to the fund. People born in 1955 are eligible to receive their full benefit at sixty-six years and two months. They would qualify no later than early 2021. Since 1955 the qualifying age has slid to sixty-seven in 1960, where (as of this writing) it currently remains. Also, almost everyone knows you can take the benefit early at age sixty-two or put it off until you’re seventy.

Postpone Taking Social Security

The advantage to postponing is that your monthly benefit will increase by 8% every year you wait. So, if you are eligible (or soon will be) to collect social security, you may want to put it off for a while. After you reach seventy years, however, the increases cease. Also, you can’t “bank” payments. The Social Security Administration will not pay you more that six months of any retroactive benefits you could be eligible for. This means that waiting can be profitable. If you can continue working a few more years and increase the amount of your monthly benefit, you might not have to say “I can’t afford to retire.” But, waiting too long can cost you. Regardless of when you take it, your Social Security benefit is taxable.

If you postpone taking social security and continue working you will be able to collect more social security later and have more time to save money and payoff bills and become debt free. 

Take Social Security Early

Waiting to take your Social Security benefit is one option, another is to take it early. You can take it as early as age sixty-two. If you do take it early, the amount you receive monthly will be less than you would get at full benefit age, and the reduction is permanent. The idea behind this is that the reduction will help compensate for the (assumed) longer time you’ll receive the benefit. If you’re interested in the effect that taking your benefits early (or delaying them) would have on your monthly payment, check out the website provided by the Social Security Administration.

Another condition that comes with taking social security before you reach the age for full benefit is that it may affect how much you can earn. Every year a limit is set as to how much you may earn before you’re penalized. If you exceed the amount you are allowed, you are required to pay back one dollar of you Social Security benefit for every three dollars you earn over the set amount. That’s 33%. According to NOLO, in 2022 the amount you’re allowed to earn before being penalized is $21,240. (NOLO Press publishes DIY books and software on legal and business matters.) And FYI, the Social Security Administration doesn’t set up a payment plan. They suspend payment of your benefits until the amount you owe is recouped.

Do you remember that your benefits are taxable? Taxes are taken out before you receive your payment, just as they are from your paycheck. When the Social Security Administration takes back money you owe because you earned too much, they don’t take into account the taxes taken from your benefit. It’s up to you to make that adjustment when you file (or amend) your tax forms.

If you won’t have much money going into retirement you should read my article “How ToFrugal Living On Social Security”. 

There Is An Out

It’s pretty easy to change your mind if you’ve planned to defer taking Social Security until sometime after you’re qualified for full benefits. All you’ll need to do is fill out the forms and wait for them to be processed. Then, you’ll start receiving your monthly benefit.

There’s more involved if you’ve started taking early benefits: You have up to 12 months to change your mind. You do have to pay back any benefits you’ve received. Then, when you reach your the qualifying age, you can refile for full benefits. Also, it may be possible to suspend your benefit. There are circumstances that many allow it to have increased when you reinstate it later. Check with you local social security office or visit them on line at social security to get specific information.

Input From Me

Frequently asked questions are:

Can I live on social security only? The answer is yes but it may be a struggle but if you are frugal you can do it. There are things you can do to improve your life if you choose or need to live on social security only. Read my article How to live on social security only.

Where can I retire and live  on social security only?  I know it may sound like the same question reworded but they are different. Depending on your social security there are countries where you can live comfortably on social security only. Read my article where, can I live on social security only.

If you’ve read any of my other posts that comment on Social Security benefits, you know I caution against relying heavily on them as the sole source of income for a comfortable retirement. We need a plan that includes a realistic lifestyle and the means to support it. Social Security can provide some of that support, so can these other practices.

Have An Emergency Fund

I’ve said this list has no particular order of importance. I’m (sort of) taking that back. Having an Emergency Fund is very important for everyone.

Sometimes, as we get older, it seems harder to come up with money when we need it quickly. When unexpected, unpleasant things happen…That describes life, doesn’t it? When those things happen, it helps to have funds on hand that can help normalize the situation. I’ve written an article on how to start an emergency account with no money. My article explains how to build an emergency account, even if you don’t have a large income. That could be a factor that helps you avoid saying “I can’t afford to retire.”

Put Your Retirement Account To Work

If you’ve been building a retirement account you may be able to maximize its potential by buying an annuity. In short, an annuity is a contractual investment similar to a mutual fund that can increase in value. Depending on the contract, you could purchase the annuity with one payment or make monthly payments. Once you own your annuity, you can start receiving an income from your investment. Your contract will include a yearly guaranteed payout for your lifetime, but you could be paid more. Payments could be monthly, quarterly, or yearly as determined by the contract. As with other investments there are some fees involved, so it’s best to do research or seek advice from a financial planner.

There are mixed feelings about annuities. On one side there’s the certainty of an income stream and the possibility of the amount exceeding the contractual minimum. The payments are for life, and it’s possible for total payments to be considerably greater than the purchase cost.  The other is less positive: For some people it’s hard to trade their control over a large amount of money for an amount that is “doled” out to them. They may also be concerned they won’t live long enough to make the arrangement worthwhile.

There are strong arguments on both sides. You have to consider any number of factors like health, what would you like to leave your family, if your cost of living is likely to remain steady or have ups and downs, etc. For some an annuity could be the answer to “I can’t afford to retire.

Pay Off Debt

Debt can be a huge problem for anyone, but it seems to the retired or soon to be retired it presents a greater challenge. That stems from the very real prospect of a limited income…and…to a great extent, that’s the focus of this article, to give you a vision of ways to press the limits of that limit.

If you are in debt become debt free. Become frugal and save money. You may need to take on a side gig or part time job. Use the proceeds to become debt free and stay that way.

Since I was just talking about annuities, I want to bring up an idea an older relative of mine—a cousin of some kind—is using. He’s 20 years older than I am; born in 1935, that puts him in his eighties. He served in the military and has a pension. After leaving the service he worked and saved—and had a family. He also built up some debt. So, he’s had the same challenges that almost all the rest of us have. When it was time to retire, he had money saved, but he was still in considerable debt. He used part of his savings to pay off the debt. The rest was used to buy an annuity. He has his monthly retirement check from the military, a monthly payment from the annuity, and his social security. That’s three streams of income. He also has other things going on that bring in money. I’ll tell you about one or two of them in a bit. The point is he was creative and made good decisions and retired.

By the way, Social Security was instituted in 1935. The first year workers could claim the benefit was 1940. Sixty-five was the age for receiving the full benefit. My cousin did retire at age 65 in 2000. It’s interesting to note the average life expectancy in the US at birth in 1935 was 61.7 years. In other words, when he was born, it was highly likely he wouldn’t live to receive Social Security benefits. In 2000 life expectancy at birth was 74.9 years. For babies born now, it’s around 79 years. I’m sure advances in quality of life issues (food, medicine, etc.) have and continue to contribute to his (and, most to people) receiving the benefits they’ve worked for. But, we cannot fall into the trap of believing those benefits alone are sufficient to finance life in retirement.

Now…let’s move on and explore several more ways to enhance your means to retire.

Earn Extra Money

There are many ways to earn extra money. If you’re pre-retirement and working a second job, side gig, or longer hours to pay your bills, pay off debt, or save money, keep in mind why you are doing all this extra work. Don’t get sidetracked. Apply the surplus money to the cause. Don’t fall to the temptation of thinking your future will take care of itself. You have to prepare for it now.

If you’ve already retired, the same holds true. If you need to pay off debt, do it. Work at this point in life should be for enjoyment or making living more pleasant. Definitely don’t use earnings in ways that tend to lead to more debt; activities and purchases should be on a “pay as you go” basis. And, if you’re making money, plan on saving some—even if you’re retired.

A few examples of easy ways to earn extra money are get a part time job, house sitting, sell stuff on Craig list, get a roommate, yard work. You can make money online too. Find a topic to blog. There are companies that will pay you to do surveys. One nice thing about surveys is that you work when and where you want to. In fact, that’s a great aspect about working online in general; many jobs are flexible and portable. For example, I don’t always know where or when my copy editor is working. I just tell her when I need the work to be done.

I want to go back to the retired relative I mentioned above. Several years before he retired, he took some photography classes, and got to be pretty good. He marketed himself for portraits and events and worked it as a side gig while he was still employed. He continued the gig into retirement. That was income stream number four. (Now that he’s in his late eighties, he only takes on an occasional job, but photography still brings in some money.)

Save Some Money 

Maybe you don’t really need to earn more money. If your retirement income is sufficient and you’re frugal, maybe you don’t need to find a way to augment it. But…here’s some food for thought: You could go ahead and work a job or side gig. Part-time, maybe?  If you can, put your earnings into your emergency account; you are, after all, retired. (I’ve already emphasized how important an emergency account is. We just don’t know when our financial stability might be compromised.)

There are another couple of reasons, perhaps, to take on some paying work. One is that some jobs help us stay in touch with people. Many studies indicate that being engaged with others is important to our health in various ways; bad health can be expensive. The other reason, also, has to do with other people and—maybe—our health, too. Too many people who can’t afford to retire,” isolate themselves (and that’s not good for us) because they’re afraid to use up their resources to help someone else. Very often, aid involves money in some way, even if we’re not just handing it out. It’s good for us to be able to give and earning extra money is a way to facilitate that.

About Being Frugal

If you want to do frugal well, you’ll need a budget and a spending journal. A budget will tell you how much you have to spend on life’s necessities and extravagances. “Extravagances” may sound frivolous rather than frugal, but you are (or soon will be) retired. Life is meant to be enjoyed. Just keep everything is perspective. Your budget and spending journal will help you do that.

Of course, you already know that just having some numbers on paper is not the object of a budget. Your numbers need to be a realistic reflection of what your money can do for you. Then, you need to govern your spending and live within your budget. The spending journal will help you track of your money and keep you honest. You will know what you spend your money on along with where and when you spend it.

Many people actually find money in their budget. I’m talking about the times you have, let’s say…three dollars leftover in the grocery fund or ten in fuel. Do you have a plan for those funds? You can let them sit; keep them as insurance against a time when you’ll need extra in those categories. Or, you could splurge on something. Personally, I apply those funds to a category I know is likely to need a boost. You can read my plan in my article how I save money.

Housing

In rent or mortgage payments, the average retired person spends 30% of their income on housing. That’s huge. Think about how much money would be freed up for living if you owned outright the place you live. Ideally, this strategy would be implemented years before retirement. I’m not necessarily saying the home you’ll own in retirement is the same one you started with. Many people change homes throughout their lives. They upsize and downsize and move to meet changing needs. What I am saying is that a paid off place to live, in retirement, gives you more financial freedom than having to commit funds every month to housing.

Here’s something else to think about: Just as paying for a place to live can be the biggest draw on your funds when you’re retired, it can be your biggest resource. If you had to, you could sell it your house. Of course, it wouldn’t be simple. Because you’d need a place to live, you’d have to refigure your expenses and there are always tax issues, but the money you get from the sale could cover an emergency.

Another option for accessing the money tied up in your house is to do a reverse mortgage. The great advantage to a reverse mortgage is that you would have more monthly income and still live in the house. For some, that’s a solution to the “I can’t afford to retire” dilemma. But, there are disadvantages also. Check with your financial planner before making the decision to do this.

I want to bring up my cousin again. I told you he used money he had in a retirement plan to finish paying off his house. Sometime before he did that, he did some remodeling. His house has an attached garage with a big room over it. You used to enter the room through the upstairs hall. His kids used it as a playroom when they were young. Later, he made it into an efficiency apartment. Among the things he did was seal off the door to the hall and add an outside stairway and door. He’s rented that place out pretty consistently. That’s income stream number five. Could you do something like this to increase your cash flow? (Of course, your have to be sure neighborhood covenants allow it.)

Relocate

This will be no surprise to many of you… There are some places that are more expensive to live than others. New York City may be the most expensive place to live in this country. Compared to NYC, living in Scottsdale Arizona is cheaper in almost every way. If the cost of living is high where you live, should you head for Scottsdale? Would that really help you?

I live in a good-sized town in Illinois. Since I work here and still have a few years until I retire, for me to move to Scottsdale is not practical. I’m not sure I would pick Scottsdale anyway, there are other economical places to live. I like living close to my work. I could move north about 15 miles and find a nice place that would cost less than property in my town, but then I wouldn’t be close to my work, and I’d spend more in travel costs. That matters now. After I retire, it might not be an issue. It’s highly unlikely I’d come back here very often. But…when I’m retired I might have to balance cost of living with other quality of life issues. I might want to live close to my children—or my friends. In retirement we have to consider these things. Definitely, it’s about money, but it’s not all about money.

Ok. It may not be all about money, but for a large number of retirees, it’s enough about money that they move to countries where the cost of living is very low compared to the USA. Take the Philippines, for example. According to numbeo it’s much cheaper to live in Manila, which is a huge city in the Philippines, than in most places in the United States. (Numbeo.com is a source for information on cost of living and other quality of life concerns around the world.) If you are one of the i can’t afford to retire people it’s worth looking into.

A couple of years ago, one of my friends retired and moved to Vietnam. The cost of living there is even lower than in the Philippines. He lives in what was formerly Saigon and is now Ho Chi Minh City. For less than $600.00 a month (American) he lives considerably better than he could anywhere in the United States. That’s less than half of his social security check. (Pretty powerful stuff there…) He comes back to the States twice a year to visit family. Since they live on the other side of the country from where he lived when he was here, that scenario remains the same. By the way, his move was no spur-of-the-moment decision. He planned it for years. Included in his plan were arrangements to do some volunteer work.

A word of caution: If you think moving overseas might be an option for you, look into it. For starters, there are plenty of expat sites full of real life information on the internet. One thing my friend was glad he learned before he moved: If you can’t prove you’ll be able to pay for it, Viet Nam will not provide medical treatment. (A lot of countries have that policy.) He needed to buy insurance before he moved. Again, the internet came in handy. There are a number of insurance companies that offer policies to cover that contingent, World Nomads is one. Do some research; medical insurance won’t be the only issue.

If you decide moving overseas is an option, read my article “Where can i live on social security aloneWhere can i live on social security alone“.

Conclusion

The idea of “I can’t afford to retire” is not appealing, and to fund retirement, many of us need to think outside the Social Security and/or Retirement Fund box; we have to get creative. This requires setting some goals and a plan for meeting them. A major objective should be eliminating debt and increasing the cash that comes in. The earlier in life that you begin preparing for retirement the better, but even if you’ve already made the move to retirement, there are things you can do improve your lifestyle. (Moving might be one of them.) Think about the ideas I’ve presented for “finding” and producing money. They could inspire you to come up with some of your own.