If Corey were able to continue working and saving at the same rate until age 67, hypothetically, she might have enough retirement savings to live to age 95. This example assumes that she will receive approximately $2,500 in monthly Social Security benefits when she reaches full retirement age. You begin taking required minimum distributions from your retirement account at age 73.
But in the new situation of retiring earlier than expected, Corrie could find herself cash-strapped by age 81.
Here are three ways Corey can structure his finances to ensure he can save for retirement.
1. Create a budget and go back to basics
For Corrie, it’s important to take a comprehensive look at her budget, including income, expenses, and assets, to understand how much money is coming in and going out each month. That way, she can make changes that could potentially make her retirement savings work longer.
In this scenario, assume Corey receives a six-month severance package from his employer worth $45,000. She may need to use some of it for short-term expenses. But if she has some flexibility, she could use it toward her retirement savings goals. By investing your after-tax funds, along with the rest of your retirement savings, in an investment portfolio, you may be able to extend your cash deficit by two years.
By considering the “expenses” portion of your budget, you may find that you can eliminate unnecessary costs. For example, because you no longer commute to work, you may be able to reduce the amount of money you used to spend on transportation. Cutting back or reducing other items may require discussion with your spouse. If you eat out regularly, you might consider eating out four times a month instead of six. Similarly, if you typically take two vacations a year, you can talk about the possibility of taking one vacation.
