What if You Are Not on Track to Retire?
A successful retirement depends heavily on anticipating, calculating and budgeting financial resources. Paying attention to your financial resources determines whether you'll have enough money to retire. If you are not financially ready for retirement, here are six strategies that can help boost your retirement resources.
- Delay receiving Social Security
- Postpone retirement
- Delay receiving retirement benefits
- Save more
- Consider available assets
- Reduce your budget
1. Delay receiving Social Security. You may begin receiving Social Security retirement benefits at age 62, but your benefit will be reduced unless you wait until your Social Security Normal Retirement Age (SSNRA). The SSNRA ranges from age 65 to 67 depending on your year of birth.
Delaying Social Security benefits can significantly increase your monthly payment amounts. Social Security income increases each month you delay taking benefits until age 70. However, if you continue to work or delay taking retirement benefits, you should consider signing up for Medicare Part A when you reach age 65. Read the Health Care Planning for Retirement article for more information about health insurance in retirement.
2. Postpone retirement. A steady income continues as long as you are working. This reliable income gives you more time to save and reduces the number of years you will have to rely only on your retirement savings--including the United Methodist Personal Investment Plan (UMPIP) and Horizon 401(k) Plan (Horizon). In addition, delaying benefits may increase monthly payments in retirement. For example:
- The defined benefit component of the Clergy Retirement Security Program (CRSP) provides participants who delay retirement a higher monthly payout due to added years of credited service.
- Ministerial Pension Plan (MPP) benefits may increase due to the longer investment period, as well as the fact that the annuity will be paid over a shorter expected lifespan.
- Supplement One to CRSP (Pre-82) may pay a higher monthly benefit depending on age and years of service at retirement.
Delaying retirement by only a few years could be enough time to help meet—or even exceed—retirement income needs. Use the Retirement Benefits Projection or speak to a Wespath Benefits and Investments representative to determine how delaying retirement could affect your benefits.
3. Delay receiving retirement benefits. You are not required to begin monthly benefits or to begin taking distributions from retirement accounts until your actual retirement age or age 70½, whichever is later. Know the plan rules—delaying retirement benefits can cause them to increase in some cases and decrease in others.
- CRSP—When you retire, you stop earning credited service in the defined benefit portion of CRSP and the formula used to calculate this benefit is “frozen”—you do not receive an increase if you delay receiving this benefit after your normal retirement date. If you retire before reaching your normal retirement date and begin receiving benefits immediately, your benefit is subject to an early retirement reduction. If you wait until your normal retirement date, the full benefit is available. The defined contribution portion of CRSP will increase or decrease depending on how it is invested and how the market performs.
- MPP—You must take 65% of your account balance as an annuity. Annuity payment amounts are determined by age, account balance and the payout rate at the time your annuity is set-up, as well as spouse age (if applicable), cost-of-living adjustment (COLA) elected and type of annuity. Because your MPP account balance is invested, delaying benefits after retirement could result in a higher or lower balance, depending on market returns. Payout rates are updated twice a year (February and October) and can be higher or lower depending on market interest rates at the time. A higher rate may increase the amount of your benefit payment; a lower rate may reduce your benefit.
- Pre-82—This monthly benefit is the greater of two possibilities: what the defined benefit formula will pay, or the annuity amount that an account balance, if any, would be converted to. If you terminated your conference relationship and did not retire, the formula benefit is frozen as of the date you terminated. If you retire, the formula benefit amount will increase when the conference increases the benefit rate. Regardless if you terminate or retire, your benefit is reduced if you begin receiving it before your normal retirement date. Some conferences have established funding accounts on behalf of their participants—participants receive the greater of the funding or the formula benefit. If you will be receiving a funding benefit, market gains or losses could increase or decrease your monthly payment until you begin receiving benefits. As with MPP annuities, the conversion rate for this account balance depends on market interest rates.
- UMPIP—You direct the investment of your UMPIP account balance among Wespath's investment funds, which can experience investment gains and losses. If you delay withdrawals from your account, the balance will increase or decrease with the market. However, you may want to maintain some exposure to the market in order to keep pace with inflation.
4. Save more. A small amount set aside from your paycheck can turn into a substantial amount at retirement, depending on the timeframe. Consider investing retirement savings through UMPIP and having contributions deducted automatically from your paycheck. Talk to your employer or salary-paying unit about enrolling in UMPIP. If you are already participating, consider increasing your contributions.
5. Consider available assets. If you own a home, you may be able to access its equity. For example, by selling a home and moving to a smaller house, perhaps even moving to an area where property is not as expensive, it might be possible to free-up cash, and reduce property taxes, utility costs and other expenses.
6. Reduce your budget. Review your budget and evaluate whether there are "extra expenses" that you can eliminate. If not, consider the strategies noted above. Speak with a financial planning professional as you prepare for retirement. EY Financial Planning Services are available at no charge to active participants and surviving spouses with an account balance, and terminated and retired participants with an account balance of at least $10,000.
People are living longer—it is possible that many will spend two decades or more in retirement. It is important to know how much money you will have and how much you will need. Even if you’re planning to retire in the near future, a professionally prepared retirement plan can provide valuable guidance for your retirement years.
Participants should consult EY or another financial advisor, an attorney and/or tax advisor about the specific financial, legal and tax implications regarding these decisions.