Saving enough for retirement is a source of concern in good times, and I think most of us can agree, we're not living through good times right now. 2020 has brought numerous challenges, the most significant being the COVID-19 pandemic. Its effects are both immediate and far-reaching. Some of the unemployed are raiding their retirement savings, and new contributions are out of the question for the foreseeable future.
Americans are already recognizing the effect that the pandemic is going to have on their ability to retire. A recent TD Ameritrade survey highlighted five strategies workers are now considering to cut costs in retirement so they can afford to live comfortably on less money. I explain each of them in detail below.
1. Working in retirement
About half of those surveyed said they would consider working in retirement. The survey didn't ask about how much they would work, but it's possible that many would choose to work part time so they could still enjoy some more freedom. Gen Xers and baby boomers were more likely to consider this strategy than millennials, but all groups considered this their top option to make ends meet.
A job can provide a steady source of income in retirement while reducing how much money you must withdraw from your savings. All of this assumes, of course, that you'll be able to keep working in retirement, and that is the big if. If you become sick, injured, or you must care for a relative, you might not be able to work even if you'd like to, so you'll need a backup plan.
2. Postponing retirement
Postponing retirement is an alternative to working in retirement for those who would prefer to quit the workforce for good. It helps you because it gives you more time to save for retirement while reducing the number of years of savings you need. If you decide to work part time in retirement as well, this approach can help you make up the difference between what you have and what you need quickly.
But it's subject to the same flaw as delaying retirement. If you're unable to work as long as you'd like to for some reason, you won't be able to reap the benefits of postponing retirement.
3. Having a roommate
Having a roommate in retirement will reduce your living expenses because you'll have someone to split living costs. You might also enjoy the company if you would otherwise be living alone in retirement.
You must choose your roommate carefully to make sure it's someone you are comfortable living with and someone who can pay their portion of the bills. You should also have a contingency plan in place for what you would do if you decided you no longer wish to live together.
4. Canceling retirement
If you don't believe you'll ever have enough money to retire, you may decide to forego retirement altogether and use what savings you do have to help you cover emergency expenses or big-ticket purchases. It's not most people's ideal solution, since only about 30% of those surveyed said they would even consider it, but it's still an option.
You shouldn't stop saving for retirement, though, even if this is your plan. You could be forced to retire due to health or family concerns, or other circumstances beyond your control, and it's better to have a little saved up than nothing at all.
5. Retiring abroad
You may be able to save on living and medical costs by retiring in a different country. This strategy might also appeal to those who already plan to do a lot of traveling in retirement. If you have a place in mind, research living costs to see if this would be a more affordable option for you.
It depends a lot on which country you'd want to live in because some may not be significantly more affordable than the United States. You also have to consider how often you'd like to come back to visit family because multiple international flights per year could make your retirement abroad more expensive than a retirement in the US.
The above ideas are worth considering if you're not sure that you'll have enough money to enjoy the retirement you want. Several of these strategies can be combined to help you save even more money, but they all have their drawbacks too. You must weigh the pros and cons and do your best to save as much as you can to have a fall back if your original retirement plan doesn't work out.