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How to Retire When You Have No Retirement Savings

Last Updated May 18, 2011 10:26 AM EDT

Unless you're Rip van Winkle and have been asleep for the past 20 years, you know about the paucity of Americans' retirement savings and their resulting lack of confidence in their ability to retire. So if you're one of the millions of boomers approaching retirement age with low to no retirement savings, should you just wring your hands in despair and give up?

No way! You'll just have to be resourceful, and make the best use of the assets you have. Let me offer an example of how you can be creative to have a good retirement.

Suppose you're part of a married couple, both age 60, you're earning about $75,000 per year, and you've earned a similar amount throughout your career, adjusted for average growth in wages. Also suppose your spouse had sporadic earnings and will be relying on the Social Security spouse's benefit based on your earnings record.

In this case, your Social Security income at age 66, which is your Full Retirement Age (FRA), will be roughly $2,000 per month. Your spouse would receive an additional $1,000 per month at his or her FRA for a combined income of $3,000 per month, or $36,000 per year. Now consider a move that may sound radical, but is also quite practical: consider hooking up with another like-minded couple in a similar situation, finding a nice three-bedroom house, and living together. Your combined income will be $72,000 per year.

Beating the Averages
This $72,000 income amount is higher than the national average annual income of $62,857 for household units in 2009, as reported by the U.S. Department of Labor, or the median household income for all American family units of $50,221, as reported for 2009 by the U.S. Census Bureau. It's also higher than the average annual expenditures of $49,067 as reported by the U.S. Department of Labor in 2009 for all U.S. household units.

So if an average American family can live on less than $72,000 per year, I'm betting that two resourceful married couples can do the same. And remember that all this Social Security income will be increased for inflation, and that retirees pay less income taxes on Social Security income than taxes paid on wages earned by working Americans.

And there are a number of ways your situation can get better. First, if you delay taking your Social Security income until age 70, your monthly income would increase to $2,640 per month. There's no reason for your spouse to delay taking benefits beyond age 66, since there's no delayed retirement credit that increases the spouse's income. In this case, you'd want to file and suspend your Social Security income at age 66, so your spouse can start the $1,000 monthly spousal benefit income at age 66. When you reach age 70 and you begin taking your Social Security benefits, your combined income will be $3,640 per month, or $43,680 per year. If both married couples did this, their combined income would be $87,360 per year.

It can get even better if both couples start saving like crazy now, and between them save $1,000 per month. If they do that for 10 years, they will have accumulated a little over $150,000 (assuming they earn 5 percent annually on their savings). If they decide to start drawing on that savings for additional income, it could generate $6,000 per year if they withdraw just 4 percent of their savings, and $7,500 per year if they withdraw 5 percent.

Don't Spend it All in One Place
However, I'd suggest they keep this savings invested for the inevitable day when one or more of them die and they lose the resulting Social Security income. In the example above, if either the wage earner or the spouse dies, then the spousal benefit of $1,000 per month stops, and the wage-earner's income continues for the remaining life of the surviving spouse. This amount was $2,000 per month if the wage-earner started benefits at age 66 and $2,640 per month if the benefit started at age 70.

I'd also suggest that this pair of couples make every attempt to spend less than their combined Social Security income and save as much as possible, because it's inevitable that one or more of them will need some form of long-term care. They may be able to take care of the first person needing care, but eventually they won't be able to do this on their own and they'll need to pay for additional help of some kind.

I also recommend they make a pact to be as healthy as possible, to reduce the money they'll spend on medical and long-term care bills. All of them can encourage each other to get daily exercise, such as walking together after dinner. They can share meal responsibilities, making healthy food they can all share. They might band together to grow their own food in a vegetable garden. They could share resources, such as appliances, cars, furniture, etc. They could start their retirement with a giant yard sale to get rid of the furniture and appliances they don't need -- that would garner even more savings. In short, they've formed a commune!

Finally, if one or both of the couples own homes that can be rented, they should do so in order to generate additional income. And the home equity could be tapped if and when one or more of these retirees needs long-term care.

I realize that there are many challenges that need to be addressed with such an arrangement, such as compatibility, discretionary spending, sharing of savings, estate issues, and deciding where visiting children or grandchildren will stay. And there will be significant challenges when one person needs long-term care or dies; they will need to plan carefully for this eventuality. But in the meantime, they'll have had many good years of retirement.

This is just one example of how you can be resourceful to make your retirement work. I realize that your circumstances might not fit the above example, but I hope this will inspire you to get creative in order to make the best of your retirement years.

Want to learn more about retirement planning? Check out my latest creation -- an innovative online retirement planning guide Money for Life. I've organized a rich collection of more than 150 blog posts, articles, and research reports on the most important retirement planning decisions regarding money, health and lifestyle.

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    Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. Now he's a research scholar for the Stanford Center on Longevity, where he helps collect, direct and disseminate research that will improve the financial security of seniors. He's also president of Rest-of-Life Communications, delivers retirement planning workshops and authored Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck and Recession-Proof Your Retirement Years.