What to Do When your Client Hasn't Saved Enough

We’ve all read about the retirement savings crisis here in the United States. One recent study listed only residents of Nevada and Washington, D.C., as having retirement incomes that on average exceed the 70% pre-retirement replacement ratio typically suggested by financial advisers. The survey went on to say on average those 65 and over had retirement incomes under 60% of the desired replacement ratio. Much of this income was from Social Security rather than retirement savings.

The longer you have until retirement the more opportunities you have to increase retirement savings, adjust your investment style and other options. But what can you do if you (or your client) are nearing retirement and facing a retirement shortfall? Here are a few thoughts.

If it's an option for you, consider working for a few additional years. The benefits in terms of securing your retirement include a few additional years of earning a salary, additional years to contribute to your 401(k) plan, additional years of company benefits such as health insurance and most importantly additional years where you don’t need to tap into your retirement nest egg. Additionally, you may also be able to delay taking Social Security benefits which will increase the level of your benefits once you commence taking it. (For more, see: Delaying Social Security Can Add Up.)

For some this may not be an option. Corporate downsizing might be a factor. Perhaps you have a health issue that precludes you from continuing your career.

With retirement continually being redefined, part-time work is a bridge to retirement for many folks. Working part-time can allow you a way to ease into retirement while still generating an income stream. If your retirement savings are short of what you feel you need to support your desired lifestyle this might be a way to preserve more of your nest egg in the early years of retirement.

Depending upon the nature of this part-time work you may also be able to get benefits such as health insurance which might prove to be a cost savings for you, another means of reducing the need to tap your nest egg during the early years of retirement. (For related reading, see: The Lowdown on Working During Retirement.)

Retirement planning should entail a hard look at the lifestyle you are planning to lead and what that lifestyle will cost. I suggest that you never rely on any rule of thumb when doing financial planning and certainly the 70% replacement ratio is a rule of thumb.

Instead you need to develop a retirement budget. How much will your basic lifestyle cost? How about travel and entertainment? Don’t forget to budget for healthcare costs which are often cited as the biggest retirement budget buster. (For related reading, see: How an Advisor Can Help Cut Your Healthcare Costs.)

Doing this budget might result in a pleasant surprise or an unpleasant one. Either way you are far better off knowing where you stand as soon as possible so you can adjust if needed.

Many factors in today’s world can cause us to find ourselves short of our retirement savings goal as we close in on retirement. Job and career changes, layoffs, the rising cost of college and even raising our kids and many other factors can make saving for retirement tough.

Even if you are within a few years of retirement it is important that you maximize your retirement savings, it can still make a difference. If you have access to a 401(k) plan you can contribute a maximum of $24,000 in 2015 including the catch-up if you will be 50 or older at any point during the year. (For related reading, see: 6 Retirement Savings Tips for 45- to 54-Year-Olds.)

You can contribute $5,500 to an individual retirement account, plus a $1,000 catch-up if you are 50 or over. This includes traditional and Roth IRAs.

As you reach your mid-fifties and beyond it might actually become easier to save. Perhaps your kids are out of the house, done with college and on their own. Beside the extra cash flow this would naturally provide, this time in your life might be right for downsizing your lifestyle. Do you need that four bedroom house? Can you adjust your cell phone plan? Do you need all of those cable channels your kids used to watch their reality TV shows on? (For related reading, see: Avoid the Downsides of Downsizing in Retirement and Downsize Your Home to Downsize Expenses.)

Use any savings opportunities to ramp up your retirement savings. At this stage of life this is critical as the opportunities to save will diminish over time.

Finding yourself with a retirement savings shortfall as you approach retirement can be scary and unnerving. It’s sadly not that uncommon. If you find yourself in this situation don’t panic. There are any number of steps that you can take. The important thing is to know where you stand relative to being able to support your desired retirement lifestyle so that you will realize there is a shortfall as soon as possible. And once you realize there is a shortfall don’t wait, take action today. (For related reading, see: Outliving Your Retirement Savings.)