The first attempt at projecting retirement income for an individual or couple very likely will show a shortfall in cash flow. This is not unusual at all in retirement planning. Fortunately, there are a number of different steps that can be taken to try to make up for this shortfall. The further away an individual is from retirement, the easier it will be to make up for a projected cash flow shortfall.

Below are some steps to consider in such a case. They involve either increasing income or cutting expenses.

  • Increase savings - The first step somebody in the pre-retirement phase should take. More effective for somebody who has many years until retirement.
  • Investing for higher return - Involves a higher level of risk. Greater chance of success with those whose portfolios are too conservative for their given level of risk tolerance.
  • Working longer - Working just a couple years longer than planned can make a huge difference in an individual's retirement outlook.
  • Delaying Social Security benefits - As reviewed below, the longer an individual waits to collect Social Security retirement benefits, the greater the amount they will receive.
  • Cutting expenses - A careful review of expenses is in order, both as a way to increase retirement savings and eliminate a cash flow shortage.
  • Downsize housing - Somebody at or near retirement facing a large cash flow shortfall that will otherwise be difficult to make up may wish to consider the sale of a larger home and purchase of a smaller one. This may provide a lump sum that can be invested for income or be drawn upon in retirement. A careful consideration of real estate closing costs must be part of the analysis.
  • Reverse mortgage - A type of mortgage where homeowners can borrow money against the value of their home. No repayment of the mortgage (principal or interest) is required of the borrower(s) until the borrowers are deceased or the home is sold. After accounting for the initial mortgage amount, the rate at which interest accrues, the length of the loan and rate of home price appreciation, the transaction is structured so that the loan amount will not exceed the value of the home over the life of the loan.


Introduction

Related Articles
  1. Financial Advisor

    Should Your Retiring Clients Pay Off A Mortgage?

    Should your retiring clients pay off their mortgages? It's more complicated than 'yes' or 'no,' so here's a quick guide.
  2. Retirement

    Using a Reverse Mortgage to Boost Retirement Savings

    A reverse mortgage is a financial tool that can increase the chances of a successful retirement, if used properly. Here's how.
  3. Financial Advisor

    Retirement Bliss? Not So fast: When Savings Lag

    Most people aren't saving enough for retirement. Here are some tips savers and financial advisors can use to change that.
  4. Financial Advisor

    Retirement Savings: How Much is Enough?

    Sure, you can never save too much for retirement, but just how much is enough?
  5. Financial Advisor

    Overhaul Social Security to Fix Retirement Shortfall

    There are several theories and ideas about how we can make up for the $6.6 trillion retirement savings shortfall in America. Adjustments to Social Security and our retirement savings plans are ...
  6. Retirement

    Will You Have To Delay Your Retirement?

    With increasing healthcare costs, a longer life and a depleting Social Security fund, will you have to work until you physically can't?
  7. Financial Advisor

    Tips for Navigating the 'New Retirement' Landscape

    The retirement landscape is changing and will certainly continue to evolve. Here's how to help clients best navigate planning for their post-work futures.
  8. Retirement

    10 Things You Must Know Before You Retire

    Don't put off your retirement planning - these 10 steps can make your later years much more manageable.
  9. Retirement

    The New Retirement Age

    Why are more and more people planning on working later into their golden years?
  10. Financial Advisor

    How to Get Clients to Save More for Retirement

    Americans aren’t saving enough for retirement. Here are some tips for financial advisors who must convince them to change their ways.
Frequently Asked Questions
  1. What are Common Examples of Monopolistic Markets?

    Discover what causes real instances of market monopoly, how it persists and where monopoly privilege is most common in the ...
  2. What is the gold standard?

    The gold standard is a monetary system where a country's currency or paper money has a value directly linked to gold, but ...
  3. What's the most expensive stock of all time?

    The most expensive publicly traded stock of all time is Warren Buffett’s Berkshire Hathaway.
  4. What is a "socially responsible" mutual fund?

    As the name suggests, socially responsible mutual funds invest exclusively in socially responsible investments.
Trading Center