Retiring with holes in your safety net


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As the U.S. battles on through several years of recession, many people may be reaching retirement age with less in the bank than they hoped. Some people may have been out of work for a period of time, or may have reluctantly taken a job that pays less than they had made previously, which has made it difficult to contribute to their savings in the critical years just before retirement. Even those who have been able to save have seen declines in the value of their investments. While some people choose to delay retirement in hopes of saving a little more, others do not have that option—whether due to a job loss or for health or other reasons.

Often, the thought of retiring and losing a steady paycheck is intimidating enough. What can you do if you find yourself retiring without feeling financially ready?

The first thing you should do is take a deep breath. There are steps you can take to help alleviate this jolt to your financial, and very possibly emotional, well-being.

1. Take control with a budget

A household budget is a powerful tool for stretching your dollars and living within your means. It will show how you're spending your money now and help you spend according to your priorities, which may include debt reduction or other goals.

Use your budget to identify and pare down or eliminate non-essential expenses. Get your hair cut or styled less often, walk or bike instead of driving to do local errands, and brew coffee at home for pennies a day instead of buying $4 lattes at a coffeehouse. Spending $20 less a week on groceries translates into $1,040 extra cash per year, which you could use to help reduce your credit card debt or save for out-of-pocket medical expenses or emergencies in general (see the next section). Also, with a budget, you can see the potential financial impact of selling your home and either buying a property with lower maintenance costs and a smaller mortgage or renting an apartment.

For more ideas on cutting expenses, read Reviewing your spending habits. And to learn about setting up and following a budget, see Budgeting basics. You can also get help in creating your own budget with our Budget Worksheet.

2. Think about when to start getting Social Security

You are allowed to start taking a Social Security retirement benefit at age 62, but if you do, you will receive only about 70% of what you could have earned. You can get the full amount by waiting to take Social Security until you reach full retirement age (which ranges between 65 and 67, depending on the year in which you were born).

If you've already made a strong effort to shore up your finances and you're still having trouble making ends meet, or if you're in poor health, you may be better off taking your Social Security benefit sooner rather than later. Ultimately, the best time to begin receiving your benefits depends on your unique financial circumstances and your health. For more information, visit the Social Security Administration website.

3. Explore the feasibility of taking a part-time job

Depending on your health and other factors, working part-time may be a way to earn additional money and potentially even health benefits. If you do take a part-time job and you are receiving a Social Security benefit, be aware that any wages you earn (above a certain threshold) will reduce the amount of your benefit until you reach full retirement age. Once you reach full retirement age, however, earned income no longer reduces your Social Security benefit. Also, any wages you receive will be subject to Social Security and Medicare tax, regardless of your age. For more information, visit the Social Security Administration website.

4. Reassess your investments

Take a fresh look at the way you have invested your retirement savings. Most people have some mix of equities, for growth, and bonds, which typically are more conservative. Presumably, you will soon need to start tapping your investments for retirement income. Now might be the time to shift some of your investments that carry greater risk into more conservative ones, and to consider the role of annuities, which provide a stream of income.

Generally, your asset allocation strategy should reflect the fact that retirement today lasts a lot longer than it did for previous generations, thanks to medical advances and increasing life expectancies. Once you retire, you may live another 25 to 30 years, on average. By keeping a good portion of your nest egg in equities – particularly stock funds, which offer greater diversification than individual stocks – you may have a greater chance to achieve a long-term return that exceeds inflation. Of course, any investment decisions depend not just on your life stage but your tolerance for risk and your ability to weather fluctuations in your investments. Equities do carry more risk than other investments, including the loss of principal. You should also be aware that diversification is a technique to help reduce risk. There is no guarantee that diversification will protect against a loss.

It's a good idea for everyone, regardless of age, to reassess his or her allocation strategy at least once a year – or more often in the event of a major life change, such as a separation, divorce or loss of one's spouse or partner.

5. Create a retirement income "floor"

We believe that it’s important for everyone to create a retirement income payout that they cannot outlive. A key part of ensuring lifetime income is to establish basic coverage for essential, must-have-no-matter-what expenses. We call it the “guaranteed floor.” The fixed-income portion of a lifetime income annuity may be the solution to meet your basic needs throughout retirement. No matter how much you have saved for retirement, securing your guaranteed floor to meet your unique needs is the first step. So you may want to consider the benefits of a low-cost, fixed-income annuity as part of your retirement portfolio.

An annuity is a contract between you and an insurance company. Under the contract, you invest in an annuity account and in return, the insurer agrees to provide you with income payments. One form of annuity, a fixed annuity, provides both tax-deferred growth and a minimum level of guaranteed income and thus is particularly well-suited to serve as the foundation of a complete retirement plan. Note that all guarantees are subject to the claims-paying ability of the issuing company. Another option is a variable annuity, which can also provide tax-deferred growth and lifetime income, but differs from a fixed annuity in important ways: A fixed annuity provides a minimum level of guaranteed income, while the income from a variable annuity can increase or decrease based on market performance. The income level typically resets monthly or annually.

The Learning Center section of the TIAA-CREF site offers a wealth of information about annuities.

6. Build an emergency fund

One of your top priorities should be building or maintaining an emergency fund to cover your expenses in the event you need to repair your car or fix a leaky roof, or you run into some other unforeseen financial bind. Aim for having enough set aside to cover three to six months of expenses, but realize that a lesser amount of cash is better than nothing and will help you avoid overusing credit cards to stay afloat. Keep your emergency fund in a safe account that you’ll be able to tap quickly and easily, like a money market account at a bank or a money market mutual fund.

7. Plan for healthcare costs

Healthcare costs in retirement are a daunting prospect. The Employee Benefits Research Institute recently found that a married couple with average life expectancy planning to retire at age 65 in 2010 would need nearly $376,000 to cover costs not paid by Medicare, given the present value of Medicare benefits. These costs may include Medicare premiums, prescriptions, out-of-pocket expenses such as office co-pays and “Medigap” premiums, or premiums for insurance plans that cover costs not paid by Medicare.1

If you have not already purchased long-term care insurance or contributed to a healthcare savings account, it may not be too late to do so. You can also help yourself by choosing the right Medigap plan, which many Americans purchase to cover the costs in excess of Medicare coverage. Keep in mind that these plans come in many different shapes and sizes, with varying benefits and costs. Do your homework and read the fine print on several different plans before making a decision. The right decision early in retirement could save you tens of thousands of dollars during retirement.

Seize the day

Many people have spent their working years dividing limited income between competing priorities, and as a result may not have saved as much for retirement as they would have liked. Although you may not be entering retirement with a substantial portfolio, that doesn’t mean you aren’t looking at happy years ahead. You now have a chance to make a fresh start and spend more time focusing on family and friends and your own personal health and well-being. Getting your finances in order might take time, but the job will be easier with the help of your financial advisor and the many personal finance-related resources available in the TIAA-CREF Learning Center.

1The Use of Health Savings Accounts for Health Care in Retirement, Paul Fronstin, Employee Benefit Research Institute, April, 2010.

TIAA-CREF Individual & Institutional Services, LLC, and Teachers Personal Investors Services, Inc., members FINRA, distribute securities products. Annuity contracts and certificates are issued by Teachers Insurance and Annuity Association (TIAA) and College Retirement Equities Fund (CREF), New York, NY. 

Investment, insurance and annuity products are not FDIC insured, are not bank guaranteed, are not deposits, are not insured by any federal government agency, are not a condition to any banking service or activity, and may lose value.

You should consider the investment objectives, risks, charges and expenses carefully before investing. Please call 877-518-9161 or log on to for a prospectus that contains this and other information. Please read the prospectus carefully before investing.

Keep in mind that there are always inherent risks associated with investing in securities including loss of principal. As with all securities, your accumulations can increase or decrease; depending on how well the underlying investments perform.

Neither TIAA-CREF nor its affiliates offer tax advice. See your tax advisor regarding your personal situation.


© 2014 and prior years, Teachers Insurance and Annuity Association - College Retirement Equities Fund (TIAA-CREF), New York, NY 10017