How to Make Sure You Have Enough Money for Retirement

Getting ready to retire? Or, maybe you’ve retired, but you’re not sure your combined savings, Social Security, and pension (if you’re lucky enough to have one) will be enough for a comfortable living?

You’re not the only one. According to the annual Retirement Confidence Survey released last month by the Employee Benefit Research Institute, only 21 percent of American workers feel “very confident” that they have enough money saved to fund their retirement. Retirees don’t fare much better with only 39 percent feeling “very confident” about their retirement finances.

So, how do you get that “very confident” feeling?

I’ve compiled a list of seven steps you can take to make sure you have the funds you need to live comfortably through your Golden Years.

Know your expenses

If you don’t know how much money you need to live each month, you could be in for a rude awakening in a few years. List how much you’ll need for the essentials: food, housing, utilities, insurance, prescriptions, and medical expenses. Add to that any other anticipated expenses, including clothes, gifts, roadside assistance, anything.

Next, envision the retirement you want. Do you plan to pursue a hobby or travel? How often would you like to go out to dinner or entertain friends at home? Would you like to go to the theater, movies, and local events? Figure the costs for these extras and include them as expenses.

Create a budget

Once you know how much it will cost you to live the life you want, determine what your monthly income will be. How much guaranteed income will you receive from sources like Social Security and your pension? What can you expect from other investments, such as real estate? How much will you withdraw from your portfolio? (Keep in mind that you shouldn’t rely too heavily on income that can fluctuate or even disappear.)

You may need to adjust your expenses or find ways to supplement your income to create a realistic budget. Ideally, if you haven’t retired already, experts suggest you try living on this budget for at least six months before you retire to see if it’s feasible.

Live by percentages

Of course, your budget needs to be sustainable, maybe for as long as 30 years. A good way to determine this is to use the Rule of 4 Percent. Using this rule, you would withdraw 4 percent of your portfolio the first year you retire. In following years, you could adjust this for the amount of inflation. Experts says that by sticking to a 3 to 5 percent withdraw every year, you shouldn’t run out, even over the course of a 30-year retirement.

If 3 to 5 percent isn’t going to cover your monthly expenses, you will need to either lower your retirement expectations or supplement your income.

Tell your kids “no”

According to a Gallup poll conducted in late 2013, fourteen percent of all 24- to 34-year-old adults lived at home with their parents. Hopefully, that percent has improved with the economy because financially supporting your grown child on a long term basis can derail your retirement. You may need to stay in a larger house longer than anticipated to accommodate a third person, purchase more groceries, and pay more for utilities.

Of course, I’m not suggesting you turn your back on a child who truly needs help, but don’t enable an unmotivated one. Your “help” isn’t really help and can sometimes hurt both you and your adult child.

Get (and stay) debt free

Debt is risky for anyone, but it’s especially risky if you have limited financial means. Sure, you can afford that new car now, but what happens if inflation sets in and the cost of living goes up or, worse yet, you have a medical emergency that floods your mail box with outstanding bills?

Before you retire, eliminate your debt. If you have already retired, pay the debt off as soon as possible and stay debt free. That may mean selling your car and paying for another with cash or setting enough aside in a cash reserve to cover a payment or two.

Prepare for the unexpected

The tricky thing about retirement is you don’t know what the future holds. You may live three years or 30. You may have a sudden heart attack or require long term care. You could lose your home in a hurricane. You don’t know.

That’s why you need to prepare for the unexpected. Make sure you have medical, auto, and homeowner’s (or renter’s) insurance as well as an emergency fund of at least $1,000 cash to cover a broken water heater or other unexpected expenses.

With long-term care costs skyrocketing—one year in a basic assisted living facility can easily top $50,000— you may also want to look into long term care insurance for you and your spouse.

It’s also smart to set aside 3-6 months’ living expenses in case of unexpected emergencies.

Diversify

Chances are your retirement portfolio is probably diversified already, at least to some extent. (Let’s hope you own more than stocks in the auto industry or shares of Coca-Cola.) But, simply diversifying your IRA or 401(k) isn’t enough.  How many people lost a significant chunk of the money they were depending on in their retirement when the stock market crashed in 2007?

Investing in real estate is a great way to diversify. There’s no guarantee, of course, that real estate values will be up when stocks are down, but no matter what the state of the real estate market is, you always have something tangible—land/property that can generate income, provide tax advantages and hold true equity. With stocks, you have a piece of paper.

Real estate is also one of the most powerful tools out there for creating wealth, so if you find yourself lacking in one of the areas listed above, investing in real estate may be just what you need to fill in the financial gaps of your retirement.

Bill Manassero is the founder/top dog at “The Old Dawg’s REI Network,” a blog, newsletter and podcast for seniors and retirees that teaches the art of real estate investing. His personal real estate investing goal, which will be chronicled at olddawgsreinetwork.com, is to own/control 1,000 units/doors in the next 6 years. Prior to that, Bill and his family lived in Haiti for 11 years as missionaries serving orphaned, abandoned and at risk children