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Last-minute retirement planning strategies

In a perfect world, everyone would follow a consistent saving and investing plan, allowing them to retire with the same lifestyle they enjoyed during their working careers. In reality, though, many people find they are rapidly approaching retirement age without nearly enough savings. If this situation is familiar to you, don't worry – you still have several options. Implementing these last-minute solutions may not work as well as long-term retirement planning, but it's better than doing nothing at all.

"Every day that you delay making progress toward your retirement goals is a day that you fall further behind," says Certified Financial Planner professional Michael Shanahan, a partner at Overland & Shanahan in the greater San Diego area. "Any action taken is always better than ignoring the problem and pretending it will go away."

To enhance your golden years, follow these last-minute retirement planning strategies.

Save like crazy
Financial professionals recommend that you save 15 percent or more of your income throughout your career for retirement. If you haven't done so and time is running short, try drastically increasing your savings rate.

Reduce your current expenses wherever possible and funnel the savings into your retirement accounts. The Internal Revenue Service makes this easier by offering catch-up provisions that allow individuals over the age of 50 to contribute extra money to individual retirement accounts and 401(k)s. For example, in 2012 the annual contribution limit for an IRA was $6,000 for individuals 50 and older (in 2013, the limits bump up to $6,500). Meanwhile, in 2012 those who were 50-plus could contribute as much as $22,500 in a 401(k) plan ($23,000 in 2013).

These catch-up contributions can make a big difference. For example, if you are 50 and haven't saved a penny for retirement but are able to max out your IRA and 401(k) contributions going forward, you can set aside $29,500 annually beginning this year. Growing at an average annual rate of 6 percent, you could still accumulate a portfolio worth more than $1 million by age 70.

Take more risk
Shanahan recommends that extremely conservative investors consider taking more risk in their investment portfolios. Even though this advice may seem contrary to what we often hear, it may make sense for some individuals approaching retirement with inadequate savings. After all, if you are able to generate higher returns on your investments, your portfolio will grow more rapidly, making up for some of your savings shortfall.

Realistically, this approach only makes sense for individuals who have been investing extremely conservatively, with most of their money in bonds or certificates of deposit. Many investments in CDs and money market accounts are actually losing money right now once inflation is taken into account.

These ultraconservative investors can be "significantly rewarded for making even modest moves up on the risk spectrum," Shanahan says. For example, you might want to consider switching from six-month CDs to corporate bonds or increasing the percentage of stocks in your portfolio from 20 percent to 30 percent.

Of course, the challenge with this approach is that greater risk could lead to a loss of principal, placing you even further away from your retirement goal. So it's important to remember to make moderate moves. Large, radical portfolio shifts are seldom a good idea.

Delay your retirement
While you are working, you aren't drawing down your savings, so your investments get more time to grow. Working longer also gives you additional time to add to your retirement fund and build up your savings.

Delaying your retirement date also can increase the income you will eventually receive from Social Security. Benefits are calculated so if you live to an average life expectancy, then you receive the same total award regardless of when you begin to collect. By postponing your starting date from age 62 to age 70, you will get significantly higher monthly payments.

According to the Social Security Administration, if your full retirement age is 66, your benefit would be reduced by 25 percent or more if you begin drawing benefits at age 62. On the other hand, your monthly income would be increased by as much as 32 percent if you wait until age 70 to collect.

IRS rules can be complicated, so be sure to consult with a tax or financial professional to discuss your specific situation.

Spend less in retirement
Most people want to live a lifestyle in retirement at least equal to the one they enjoyed during their working career. However, if your savings are inadequate, you may have to cut your expenses to stretch out your savings.

For example, let's assume that you have saved $400,000 and are used to spending $50,000 each year. Ignoring investment gains during retirement, you would only have enough savings to last eight years if you continued to spend at your present rate. But if you cut your spending in half, your savings would last 16 years. Even better, since more of your money will stay invested for a longer period of time, your portfolio would have the opportunity to continue growing.

Does spending that much less sound impossible? Then try combining less dramatic spending cuts with part-time retirement employment. Says Shanahan: "We are seeing many retirees actually begin new careers in areas that they truly enjoy or consider a 'hobby.' While the pay is typically significantly less than what they were earning in their primary long-term occupation, this additional income can help retirees stretch their retirement savings considerably longer than if they have no additional income at all."

Consider moving
If you have significant equity in your home, you might want to consider selling and using the proceeds to top off your retirement account. This is a radical move, but it is often possible to substantially reduce your total housing expenses by renting or by buying a smaller place. Another possibility is getting a reverse mortgage, which allows you to continue living in your house while receiving monthly income. Be aware, though, that a reverse mortgage is a big step and has drawbacks. So make sure to research the subject thoroughly prior to committing.

Regardless of whether you own a home, moving to a less expensive location can make a difference. Individuals in coastal areas where the cost of living is high may be able to stretch their retirement dollars further by moving to less expensive locales. For example, the cost of living in Branson, Mo., is 34 percent less than in San Diego, Calif., and the cost of living in Orlando, Fla., is about half that of living in Westfield, N.J. Less expensive locales such as Florida and Arizona also draw large numbers of retirees, offering the possibility of a robust social life and attractive recreational opportunities at a reasonable cost.

Take action today
If you don't have a lot of time, you may find you need to combine some of these solutions. For instance, delaying your retirement date while saving like crazy can form a powerful combination that will allow you to make up for lost time. Likewise, moving to a cheaper locale while also moderating your lifestyle can produce substantial savings in retirement. More retirees are choosing part-time employment, which not only supplements retirement savings, but provides an opportunity to stay mentally and physically active and engaged in the community.

Regardless of which solutions you choose, the key is to ramp up your retirement planning now, rather than worry about what you didn't do in the past.

Daniel Gannon, president of Union Street Financial based in Kennett Square, Pa., recommends two final exercises for his clients.

· Determine how much income you will be receiving from Social Security, pensions, and dividends and interest from investments.

· Try to live for two years off of that amount of income prior to retirement.

Gannon says that clients "find this to be a great 'gut check' to confirm whether or not they are indeed financially ready to retire."

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