Growing older introduces a lot of new challenges, whether it’s learning to deal with a few more aches and pains or mastering Zoom so you can video-chat with your grandkids. That you can handle. What’s really got you tied in knots is how to gain financial stability in retirement.
You wouldn’t be alone in your concern. Although inflation is relatively modest now, you wouldn’t know it by the climbing prices on everyday items ranging from prescription drugs to your last latte. For lunch, you could once grab a sandwich and a soft drink for $5, and now you pat yourself on the back if you can pull off the same combo for under $10.
Housing prices? You shake your head when millennials in your neighborhood, at least in California, are paying close to seven figures for what are essentially starter homes.
How do they do it? Well, if two people in the same household are working, say, one as a transit police officer (average salary of $74,450) and the other as a registered nurse (average salary of $75,510), their average combined salary would be about $150,000 a year, compensation once considered a king’s ransom.1
But if you’re already retired, these once royal wages won’t necessarily help you. You are likely on a fixed income, dependent on Social Security and retirement accounts like a 401(k) or IRA, if you had the prescience, discipline, and the means to stash money away for retirement.
That said, about 40 million American households today have no retirement savings whatsoever.2 Indeed, according to the Center on Budget and Policy Priorities, Social Security provides most of the income for most elderly Americans. For about half of seniors, it provides at least 50 percent of their income, and for about 1 in 4 seniors, it provides at least 90 percent of income.3
Another fact you are probably only too keenly aware of is the annual cost of living adjustment (COLA) for Social Security. In 2021, the COLA is a meager 1.3%,4 which hardly compares with the increase in pandemic-fueled food prices, which were 3.9% in October 2020.5
Like a lot of Americans, maybe you’ve tightened your belt to manage financially — perhaps choosing to eat out less or turning down the thermostat a few degrees to reduce your winter heating bills. Perhaps you’ve pushed out a few more home-improvement projects.
However, if those belt-tightening measures haven’t been enough to right your retirement ship, there are more things you can do to gain the financial stability you desire for your retirement.
Harvest the Low-Hanging Fruit
One way to correct a cash-flow problem is to go on offense and generate more money. Here are five easy ideas to help you get started:
This doesn’t mean visiting your favorite online retailer to buy another doorbuster, which is more likely to bust your budget than beautify your home in the long run. It means shopping for better rates from everyone you do business with, from your credit card to your internet/streaming providers. Ask for a lower interest rate or cost than what you’re now paying or take (or at least threaten to take) your business elsewhere. The better your credit is, the more leverage you’ll have in your negotiations.
Use Your Assets
Have the kids moved out, leaving you with spare bedrooms? This is your invitation to rent one out for extra income. Two homesharing platforms are the National Shared Housing Resource Center (https://nationalsharedhousing.org/) and Silvernest (https://www.silvernest.com/).
Get a Gig
Gig is shorthand for flexible, temporary, or freelance jobs that offer advantages to both you and your employers. Jobs as couriers and messengers have experienced explosive growth given the rise of e-commerce that delivers packages right to your doorstep.6 If you don’t wish to get behind the wheel, plumb other talents of yours that can compensate you with tutoring, consulting, computer repair, and freelance writing. Get creative.
According to the American Pet Products Association, Americans spent $95.7 billion on their pets in 2019 — and that’s not counting what Americans spent on pet-sitters and pet-walkers.7 It’s a win-win-win. Rover’s owner gets peace of mind, Rover gets a companion, and you get compensation and exercise for providing a great service.
Once upon a time if you wanted to sell stuff, you listed your wares on eBay and Craigslist. These online platforms still exist but new, more targeted rivals are popping up all the time. If you are a good knitter, jewelry-maker, scrapbooker, framer, or baker, you could post your arts and crafts on Etsy, an e-commerce website focused on handmade or vintage items and craft supplies. Meanwhile, OfferUp is an emerging, online, mobile-first, consumer-to-consumer marketplace with an emphasis on in-person transactions. It was founded as a competitor to Craigslist.
Manage Your Money Better
You may not have a money problem as much as you have a money-management problem. In other words, too much of your money could simply be going to pay for the wrong things, like double-digit interest rates on your credit cards.
If you own a home, you have a few options for knocking these high rates down:
A cash-out refinance replaces your current home loan with a new mortgage that’s higher than your outstanding loan balance. You withdraw the difference between the old mortgage balance and the new balance in cash and apply it toward consolidating higher interest debt or other financial goals that can put your retirement on a more stable footing. A cash-out refinance can be an ideal solution when you’re able to replace your current mortgage interest rate with a new lower interest rate.
Home Equity Line of Credit
A home equity line of credit is a second mortgage that is tacked on to your current mortgage. Instead of your funds getting disbursed to you in a lump sum, as happens with a cash-out refinance, you have access to a credit line that you can draw on as needed for a set period up to your approved limit.
Reverse Mortgage Loan
Unlike the previous two options, you don’t have to begin paying back a reverse mortgage after the loan closes. You can wait to repay the loan until you leave the home, which can do wonders for your cash flow. A reverse mortgage also requires no monthly mortgage payments, providing another boost to your cash flow. However, like any mortgage, you must maintain your home and keep up your property taxes and homeowners insurance.
But a reverse mortgage is not for everyone. To apply, you must be 62 or older, own and live in your home as your primary residence, and have either no mortgage or a mortgage balance much lower than your home’s value, giving you enough home equity to borrow against.
Thus, a reverse mortgage loan is simply a flexible financing tool that allows you to convert some of your home equity into tax-free cash that you can use to pay off bills, reduce high-interest debt, and put to work virtually any way you please for a more stable retirement. For example, you could use some of your proceeds to pad your emergency fund or pay for your long-term care needs.
After paying off your current mortgage, if you still have one, a reverse mortgage also offers the advantage of six different payouts, which gives you more financial control over your retirement. The most popular payout option is a line of credit for which you are charged interest only on the portion you use. Whatever portion of the loan you don’t use continues to grow year after year, making it an outstanding reserve fund for whenever you need it.
From the pandemic to the economy, Americans have a lot of concerns these days, and if you’re an older American, you may be faced with even more pressing challenges. Will you be able to continue living in your home? Have you set aside enough money for your retirement? Will new health issues arise?
You may not be able to predict what the future holds, but you can prepare for them. That is within your power. To start, take proactive measures now, such as working and getting paid for things you enjoy, monetizing your key assets, and weighing the use of some key financial tools that may give you a more secure retirement.