If you haven’t saved enough for retirement, then you’re not alone. According to a study by the Government Accountability Office (GAO), almost 29% of households age 55 and older don’t have a retirement savings or pension. For those that did save, the GAO study found that “the median amount of those savings is about $104,000 for households with members between 55 and 64 years old and $148,000 for households with members 65 to 74 years old.”1 For many seniors, this may not be adequate, especially for those with unexpected expenses such as medical bills.
It’s important to have enough cash flow in your retirement years, ideally coming from multiple income streams. It’s also critical that you live within the means of whatever budget you’ve set for yourself. If you need some guidance, it can be helpful to consult a financial advisor. They can help you identify your goals, provide an analysis of where you are and determine your best options.
If you’re looking for some creative ways to increase your cash flow, below are some ideas that you may not have considered.
If you’re in good health, you could delay retirement a bit longer, or continue working, but cut back to part-time. If you’ve already retired, you might want to think about going back to work on a part-time basis doing something you enjoy. If you have expertise in a particular area, you could work as a consultant or serve on a board part-time.1 However, do some research before pursuing this route as some nonprofit board member positions may not be paid.2
Other possibilities for increasing cash flow include cashing out stock options1 if you have them or catching up on additional contributions to retirement plans. If you’re age 50 or older, you can take advantage of catch-up contributions for retirement accounts such as 401(k) plans and other individual retirement accounts. With a 401(k) for example, in addition to the 2015 contribution limit of $18,000, you can contribute an extra $6,000. For an IRA, the annual limit is $5,500, but if you’re 50 or older, there’s an optional catch-up contribution of $1,000.3
When it comes to increasing your cash flow, “Reverse mortgages are also a possibility” says David Nguyen, a Houston certified public accountant.1 The most common type of reverse mortgage is the HECM, which stands for Home Equity Conversion Mortgage. A HECM is insured by the Federal Housing Administration and is available for seniors age 62 and older. A reverse mortgage loan allows you to convert a portion of the equity in your home into tax free4 cash to help supplement your income without making any monthly mortgage payments.5 You still own your home and maintain title. The funds can be used any way you’d like4 such as for medical care, home repairs, unexpected expenses or you can simply save the money for a rainy day. The amount of money you can receive is based on age, interest rates and the home’s appraised value. You can receive the loan proceeds in a lump sum, monthly payments or as a line of credit. With a HECM, any existing mortgage balance is paid off using the proceeds from the reverse mortgage loan.
If you’d like to learn more about reverse mortgages or want to see if you’re eligible, call 800-218-1415.
1 “Creativity Can Grow Nest Egg After 55”, Houston Chronicle – chron.com, by Valerie Sweeten, 10/13/15, http://www.chron.com/homes/senior_living/article/Creativity-can-grow-nest-egg-after-55-6569370.php
2 National Council of Nonprofits, councilofnonprofits.org – Tools & Resources, https://www.councilofnonprofits.org/tools-resources/can-board-members-be-paid
3 “Does Your Retirement Plan Need a Reality Check”, CNBC.com, by Sarah O’Brien, 9/17/15, http://www.cnbc.com/2015/09/17/does-your-retirement-plan-need-a-reality-check.html
4 Consult your financial advisor and appropriate government agencies for any effect on taxes or government benefits.
5 You must live in the home as your primary residence, continue to pay required property taxes, homeowners insurance and maintain the home according to Federal Housing Administration requirements.
Author: Meredith Manz