Don’t Have Much of a 401k or IRA? How Senior Citizens Build A Retirement Fund On A Fixed Income
The question of how to squeeze extra money out of a fixed income budget has long perplexed both advisors and their retiree clients. The answer is of course not simple, but most people fall into one of two categories — those who can draw on retirement accounts and those who cannot.
For Those Who Have Social Security — and that’s kind of it.
A whopping 40% of Americans rely solely on Social Security for their income after the age of 65. How? Well, luckily for this group social security will likely be funded for the remainder of the time they will require it. Additionally, Medicare also covers the majority of healthcare costs.
But what if a Medicare supplement is needed? An unexpected health cost? A repair needed on an older home? The reality is, there is always something that extra cash will be needed for. For this group of retirees, the goal of building an emergency fund will be a little more challenging. Here are some ideas for those with a home and those without to boost their savings.
For Those Who Are Not Homeowners
This group will need to get the most creative. The first step is cutting down expenses. It is likely expenses are already not terribly high, but getting rid of subscriptions, cable and negotiating phone bills are all effective ways of trimming down the budget to reclaim money that can be put into an emergency fund.
Another popular method people in this category utilize — maximizing the assets you do have. You might look around your things and think they are not valuable, but selling old pieces of furniture or jewelry you have no particular need or use for anymore can give you what you need to start a rainy day fund.
Another great option is to take advantage of skills you have built throughout your life. Have a hand at painting? Cursive? Or book editing? Websites like Fiverr and Upwork post wanted ads every day for tasks like this that need completing — and they pay good money. Picking up one or two projects a week that you enjoy doing could net you just enough to start feeling more comfortable about your nest egg.
The most important takeaway: even with very little, you can maximize what you have to still make money. Ask a family member (or even US!) for help on how to use online resources.
For Anyone Who is a Homeowner
First and foremost, an important disclaimer for anyone reading this; this strategy is NOT recommended for ANYONE under retirement age, nor for anyone that is not in critical need of extra money.
A reverse mortgage, if done correctly, is a smart way to build emergency funds drawing down on an asset you already own and have spent years building equity in. You’ve paid off your house, but you are now asset-rich and cash poor — a reverse mortgage can help that.
A reverse mortgage is essentially borrowing from yourself. Let’s say your house is worth $500,000, but you reckon you need $50,000. You call the bank and ask to take a $50,000 reverse mortgage on your home. You get the $50,000 in cash, the bank reclaims the same amount of equity in the home. You technically have to pay yourself back, but in a pinch, this strategy works for senior citizens.
Again, this is a very risky strategy because if you become overzealous or overconfident. If you take too much money out and falsely think you will have the means to pay it back, you could be left without a home. If done modestly though, you can take a **small** amount of money out and either slowly pay it back or essentially live through it.
This strategy is a last-resort option for those who do not have other retirement accounts to draw down on. A reverse mortgage gives you quick cash but should never be approached as a good thing to do. The better option will always be to have a retirement account like a 401k or IRA. Many people have become homeless in their old age because of the mishandling of reverse mortgages — it is a serious endeavor and one to be undertaken only in small doses and for the security of emergency expenses when no other method is available.
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