As the economy continues to recover from the economic tumult that began in 2008, a simple truth remains: We aren't getting any younger.
There are a few other ugly truths that need to be examined. Only one in five retirees can count on a pension or their own retirement savings to see them through the golden years. That means four out of five retirement-age individuals are relying on Social Security, home equity, and some combination of annuities and miracles. Fortunately, even if you lost your savings or were forced into retirement before you were ready because of the economic and housing crash, you still have options.
Social Security
While it was once designed as a supplement to other income sources, today Social Security is the primary retirement income of the majority of Americans. The amount you've paid into Social Security and the age at which you claim your retirement benefits can change your income dramatically. Claim early at 62, and you'll receive 25% less per month. Claim late at 70, and you'll receive an additional 32% -- but how many years will you live after 70?
It's a gamble either way, and you would do well to analyze your heath, your family history, and your current needs to determine the optimum age to claim your retirement. For example, if you are in poor health or dire financial straits, claiming Social Security at 62 makes sense. If your parents lived well into their 90s and you aren't in immediate need of income, taking a huge reduction in monthly payments for the next 30 years makes much less sense.
Reverse mortgages
If you are one of the lucky ones who survived the housing crash with an intact mortgage, or perhaps even a substantial amount of home equity, you have some options available. With enough equity, you can arrange a reverse mortgage. In short, you turn your home over to the bank in exchange for the right to live in your home until your demise, as well as monthly payments back to you.
For those who wish to stay in their own homes and have enough equity, this option allows your largest investment -- your home -- to help pay for your retirement. Be careful, though, when choosing a reverse mortgage. If you take the money out as a lump sum, rather than regular payments, you can use your funds up too quickly and wind up with nothing in your advanced age. Reverse mortgages can also be problematic if you move out or sell your home after you arrange the mortgage.
Annuities
If you don't stay in your home, you might sell it and pocket a large lump-sum payment. That lump sum, or any other that is inherited or awarded to you, can be used to arrange an annuity. Much like Social Security, an annuity pays out a specific amount every month for a set amount of time or for your lifetime. Annuities have also become more flexible, allowing you to attach survivor's benefits or make the annuities more suited to your lifestyle choices and positions.
When choosing an annuity, it's important that you do your research about which annuities offer the lowest fees for management, which are fixed, which are variable, and how the payments are actually handled.
Annuities are available through many big-name insurers. If you've invested in annuities and want to sell, there is a secondary market where companies like JG Wentworth and others will purchase your future payments. However, knowing what your settlement is worth before selling your future payments is strongly advised, as you will only find buyers at a discounted value.
