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What to Do If You Haven’t Saved Enough for Retirement

In the race to retirement a surprising number of Americans are getting to the finish line and realizing they haven’t saved enough. What’s more surprising is the number of people who have saved ZERO.

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One in four Baby Boomers have saved nothing for retirement and when you include their younger counterparts the number is even more startling: 34 percent of all adults have no retirement savings, according to a recent poll from Harris Interactive.

Put another way, nearly half of the people close to retirement right now (56 to 62) will run out of money if they’re retired for 20 years, according to the Employee Benefit Research Institute.

“It’s the ostrich mentality — people stick their heads in the sand,” said Neil Ellington, executive vice president of CESI Debt Solutions. “It’s our collective understanding that it’s an issue out there but it’s not really resolved.”

Planning for retirement is a lot harder than planning a budget while you’re working. First, there’s the unknown: Who knows how long you’re going to live and who knows how much money you’ll need? How can you anticipate a big medical bill for a future condition that your insurance doesn’t cover? Plus, there’s the fact that spending is just plain fun. And isn’t it more fun to spend than save for something that’s foggy and far off?

So, for many people it becomes a vicious cycle of spending, procrastination and as the finish line draws near — denial.

If you are one of the people who’s at or near the retirement finish line, and you haven’t saved enough, it’s time to hit the panic button and make some dramatic changes. You need a plan — and you need it now.

Here’s some cold, hard math: The average monthly Social Security check was about $1,177 at the beginning of 2011, according to the Social Security Administration. And, you’ll need about 75 percent to 85 percent of your pre-retirement income in order to maintain your lifestyle. You should, of course, use a retirement calculator (AARP and the Social Security Administration are good places to start) to crunch out your numbers. For the sake argument, if your monthly expenses right now are over $1,500, and you haven’t saved enough in a 401(k) or other retirement account, you’re going need a hurry-up offense to get your numbers to line up.

And even though you don't know how long you're going to live, assume that you'll need to have enough to live on for 25 to 30 years.

Here are some of the things retirement pros suggest to help kickstart a weak — or nonexistent — retirement plan.

Ask for help. A lot of people who fall into the haven’t-saved-enough category think that financial planners are only for the rich but that’s not true.

“Many offer their services at little or no cost, or do so on a sliding scale,” said Doug Hershey, the director of the Retirement Planning Research Laboratory at Oklahoma State University.

Plus, retirement specialists like Hershey offer community seminars, many of which are free, so all you have to do is a little research. Search “financial planner” and your town’s name online and read your local paper regularly for listings for special seminars.

Get rid of debt. Most people who’ve reached this stage of not having enough are probably carrying debt. If you haven’t saved enough, you’ve probably spent too much.

There are organizations, like Ellington’s CESI Debt Solutions, that will help you set a plan to pay off your debt. But a big misperception, Ellington says, is that just by asking for help, “something ‘magical’ is going to happen. It’s the entitlement syndrome” — that, by asking, someone will just give them money.

The truth is, you still have to do the work. What they’ll do is help you negotiate a lower rate on your debt and more manageable payment plan. Some companies will help you negotiate a lower principle. The only way you can get it erased is by filing for bankruptcy protection — and that really should be a last resort.

Dramatically cut your expenses. If you’re ready to retire but haven’t saved enough, small changes like eating out one less time a week aren’t going to cut it. You need to slash your spending — even if it means you’re not living the life that you expected.

“You have to be realistic about changing your lifestyle,” Hershey said. “Maybe you’re not going to be able to support your kid through college the way you’d like to. Or shower your grandchildren with gifts …That’s the price you pay for procrastination,” he said.

It’s never easy to slash spending but meeting with a professional and crunching your numbers in a retirement calculator provide that much-needed wake-up call to get you dramatically cut your expenses so you don’t run out of money.

Consider downsizing your home. Housing is your biggest expense — or, if you own, your biggest asset — so downsizing your home can give you one of the biggest bangs for you buck.

Larry Rosenthal, president of Financial Planning Services in Northern Virginia, says a good plan, if you own your home, is to sell your house and buy a smaller house or condo for cash. That eliminates your biggest bill of the month — a mortgage.

If you insist on staying in your home, Rosenthal says you should only use a reverse mortgage as a last resort. What’s better is a sale leaseback, where you sell your home to your adult children and they let you rent it out (so your rent is paying the mortgage) for life.

Another solution, which is perfect for empty nesters, is to rent out a room in your house, said Johanna Sweaney Salt, a CPA with Kaufman, Schmid, Gray & Saltin Claremont, Calif. That can bring in a few hundred dollars each month that you didn’t have before. Maybe that, coupled with Social Security, will help you reach the number you need to live off of. Or, if you still have a few years to retirement, you can just pump it into your retirement account and let it make money for you.

And, you should never rule out moving to a cheaper market. There are a lot of places, both in the U.S. and in other countries, where your dollar stretches a lot further. (Check out The Best Places to Retire Outside the U.S.)

Work longer. Sixty-five is the number that has been chiseled into popular consciousness as the magic age for retirement, but the truth is, people are living longer these days so you may want to consider bumping up that number and working into your 70s.

It sounds shocking at first but there are several benefits to working longer, Hershey said. First, it reduces the number of years you’ll be in retirement and living on a tight budget because you didn’t save enough. Plus, it could help increase your Social Security benefits, gives you more time to save money for retirement and your nest egg, however small it may be, will have more time to grow.

Ellington said he and his wife recently bumped up their target retirement age to 72 from 65.

Work twice as hard. If you haven’t retired yet, but you already know you’re running short of funds, Salt suggests considering a second job and dumping all of that money into a retirement account. She suggests being creative — using whatever talents, skills or interests you have. So, if you knit, maybe head down to the local craft store and see if they would consider letting you teach a knitting class a few times a week. Or, if you’re good with cars, consider teaching a class down at the local vocational school.

They may not sound like sexy solutions but then again, neither is not saving for retirement. That ship has sailed. It's time to roll up your sleeves and get the job done. No pain, no gain.

One thing that the pros universally agree on is that bumping up the risk level in your portfolio is never the answer. Financial planners typically suggest that as you get older, you pare down the percentage of your portfolio that’s in riskier investments — things that have the potential for big returns also big losses. It may be tempting when you’re short to take a chunk of your retirement savings and gamble it on a riskier investment in hopes of a big payoff but the flipside of that is that if you lose, you’ll lose big — and when you haven’t saved enough for retirement in the first place, that can be a crushing blow.

The best piece of advice, the pros say, is to get a plan — now. Don’t assume you’re going to work forever. Plan for the unexpected, like big medical bills or taxes on your retirement withdrawals. And never assume that everything will work out. The only way that will happen is if you have a plan.

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