Determining How to Bridge the Gap

According to Oscar Wilde, there are only two tragedies in life: not getting what you want, and getting what you want. If you're like most people, you suffer more often from the former, rather than the latter, tragedy. And, like most people, you'll probably find that you don't have enough money to pay for the type of retirement you initially hoped for.

Don't give up just because your expected retirement needs aren't met by your expected retirement funds. Hopefully, you are still early enough in the retirement planning process to make something happen. You also have several options available to bridge the gap between your retirement income and expenses.

Financial Calculators Use this Retirement Shortfall Calculator to determine your projected retirement savings shortfall or surplus.

Save more money. You can never be too rich or save too much money. The more money you save, the more flexibility you'll have during retirement.

If you have trouble saving money, there is no time like the present to mend your ways. Previously, we discussed the benefits of keeping track of your spending through the use of a monthly budget.

After taking a closer look at their spending habits, people are often surprised (and sometimes embarrassed) at how much money they waste each month. Whether it means brown bagging your lunch versus eating out, getting movies from the public library instead of renting them, or paying off credit cards on time to avoid interest and late fees, there are numerous ways to easily come up with an extra $10 or $20 each week to devote to savings. As the example below illustrates, even small amounts can become substantial over time.

Example Joe Coffee is 25 years away from retiring and is considering ways to save more money for retirement. He decides that he can probably live without the cafe coca mocha double latte with caramel and sprinkles that he buys every morning on the way to work. He wonders, though, if this will even make a difference. Joe is in for an eye-opening discovery. Each cup of fancy java costs him $4 and he spends a total of $1,000 a year on it ($4 x 5 workdays x 50 work weeks a year). Assuming an 8 percent rate of return and monthly deposits, Joe perks up at the prospect of having an additional $79,806.72 at retirement ($25,003 from principal and $54,803.72 from interest earned and compounding).

Your savings efforts should not be a straightjacket denying you any pleasure in life. At the same time, you can't be frivolous with your spending and expect to save enough for retirement.

Financial Calculators Reducing your spending can be worth more than you might think. Use this Benefit of Spending Less Calculator to help you see just how much your budget reductions may be worth if you were to invest them. View the value of this new potential nest egg both with and without taxes factored in.

Find a balance that works for you. If you have to put a positive spin on it, think of it as spending your money smarter as you go along.

Tip If you want to set aside extra money, but have trouble following through, why not have it done automatically? You can have part of each paycheck directly deposited into a savings or investment account. Another painless option is to have money taken directly out of your savings account to purchase investments with higher rates of return. For example, there are numerous mutual funds available that will let you get started with as little as $100. If you're looking for more conservative investments, you can set up automatic investments in U.S. savings bonds, including the attractive Series I or inflation-indexed bonds. Before investing, however, make sure you do your homework and find out the pros and cons of the investment you are considering.

Delay your retirement. As unappealing as this may sound, this may be one of your best options. If you postpone your retirement from 65 to 70, for example, you'll have five more years to save money, your Social Security benefits will increase, and your retirement plan benefits will continue to grow. If you retire later, your projected retirement needs will also be lowered since you are decreasing the number of years you are retired.

Earn more money. This may seem obvious, but you can save more money for retirement if you have more money to work with. Short of winning a lottery or game show, this may mean changing to a better paying job, working overtime or even working a second job.

You may also decide to cover the gap between your retirement income and expenses by continuing to work at least part-time during your post-retirement years. This may get old faster than you do, however, so don't count on continuing a part-time job through your entire retirement.

Decrease your retirement expenses. If you can't make more money or save more money, you should consider cutting down on your retirement expenses. For example, you may want to move to a smaller home or to a location with a lower cost of living. Your planned trip around the world may have to be pared down to a trip across the United States. Just like in your pre-retirement days, there are probably things that can be cut from your budget to help make ends meet.

Tip Don't be bashful about using senior discounts. Every type of merchant imaginable wants elderly customers (and their money). Stores and restaurants, for example, offer senior discounts at certain times of the day or on particular days to entice the elderly to spend money there. These savings can add up and reduce your overall expenses by 10 percent or more. On a similar note, you should investigate becoming a member of the American Association of Retired Persons (AARP). For a small annual membership fee, its members qualify for a lot of discounts (many up to 25 percent) and special programs. Other programs are also available, but require a bit of hunting on your part.