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Editor's note: This article is adapted from Kiplinger's Retirement Planning 2007 guide. Order your copy today.
Baby-boomers closing in on retirement with nest eggs that are a few zeroes shy of their goal know what John Lennon meant when he wrote, "Life is what happens while you're busy making other plans." As the vanguard of the 78-million-strong generation turns 61 this year -- one year away from the age when many Americans retire -- some will have to alter their financial strategies in the wake of job layoffs, investment losses, the kids' college bills and unforeseen family expenses that cut into their savings.
If you count yourself among these late bloomers, don't panic. You can still afford to retire. It will mean ramping up your savings and might mean delaying retirement. But here's the good news: With increasing life expectancies, you still have plenty of time to get it right.
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Start a new career
Jerry Hays spent his whole career as a small-town banker -- until a few years ago, when a national bank bought the savings and loan where he worked. He was offered another job if he was willing to relocate, but Jerry didn't want to leave Bloomington, Ind., where his family has lived for five generations. So at 59, Jerry decided to launch a new career. He is now a broker for reverse mortgages and life settlements, linking providers of financial services with seniors who want to tap their home equity or sell their life-insurance policies to raise cash.
Fortunately, Jerry had a home-grown adviser to guide him and his wife, Jeanne, through a sometimes difficult transition. His son, financial planner David Hays, of Comprehensive Financial Consultants, recommended that they sell their big house and use some of the profit to fatten their retirement savings and fund the new business. Jerry and Jeanne sold their home for about $400,000 and bought another for less than half that price, cutting their monthly housing costs from $2,000 to $800.
Although things didn't turn out the way Jerry had planned, he's excited about getting in on the ground floor of a new business. "I always thought I would retire at 60," he says, "but here we are starting over with a new house and a new career."
Extending your career by even a few years can have an enormous impact on your nest egg. It gives you more time to save for retirement, delays the start date for collecting Social Security (which boosts your benefits), and reduces the number of years you'll have to rely on your savings.
Today, more than half of all workers start collecting Social Security payments at 62, even though their benefits are permanently reduced by about 25%. Benefits can be cut even further if you continue to work and earn more than $12,960 in 2007. The earnings cap disappears once you reach your normal retirement age, which is 65 and 10 months if you turn 65 this year (it increases to 66 for those born between 1943 and 1954).
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