Retirement plans

The Vanguard Group, Inc.

Retirement plans

How to handle a retirement income shortfall

What happens if you estimate your retirement expenses and come up short when you total up your sources of retirement income? It's not the end of the world, but you may need to alter your retirement plans.

Here are five ways to make up a shortfall:

  • Postpone retirement. Working another year or two may allow your savings to grow and reduces the number of years you'll be making withdrawals. You may get a larger Social Security check as well.
  • Work part-time during retirement. More and more Americans are still getting a regular paycheck during their retirement years. You don't have to stick with a 9-to-5 job, however. Many retirees supplement their income by turning a hobby into a part-time job.
  • Save more in your plan. Step up your retirement savings while you're still working. Workers age 50 and older can make catch-up contributions to their employer plans beyond the normal contribution limits. If you're already saving the maximum allowed, open or add to an IRA or save money in a taxable account.
  • Tap into your home's equity. If you own your home, you could move into a less expensive home and add to your retirement savings. Or if you want to stay put, you could examine a reverse mortgage. Carefully consider the reverse mortgage's provisions, fees, and other costs if you go that route.
  • Reduce your expenses. You could make it a priority to pay off your mortgage before retirement. Or perhaps you could become a one-car family when you retire. Examine your budget carefully for opportunities to cut costs.

Stay flexible and adjust

Remember that no method of creating retirement income is perfect and that many retirees change their approach as their circumstances change. If the market drops sharply, many retirees will instinctively tighten their belts and take less from savings that year. Or a series of good returns on their investments might permit them to splurge a bit. All investing is subject to risk, including the possible loss of the money you invest.

Because there are so many factors that you can't control (such as market performance, the rate of inflation, and life expectancy), the more flexible you are, the more likely it is that you can maintain a lifelong stream of retirement income.