The average Maine retiree will be $5,870 shy of what they need to replace their annual work income in the next 20 years, a recent report by Pew Charitable Trusts and Econsult Solutions found.
It will stress individual retirees and the state. The shortfall in retirement income will cost the state about $1.6 billion in MaineCare and social assistance to retirees, the study found.
To help stimulate savings, Gov. Janet Mills signed a bill this month adding provisions to the state’s Maine Retirement Savings Program. It would give 207,000 more Maine workers, or 41 percent of the state’s private-sector employees, access to retirement savings at work, according to a study by Georgetown University’s Center for Retirement Benefits.
“I believe that it’s going to make a drastic difference with people putting money away, but it’s going to take 20 years to see,” Nate Nichols, president of Gosline Retirement Planning in Farmingdale, said. “Once people who have not saved start putting these funds away and see they have $20,000 after five years, they will start to learn how to make money in the markets.”
Until then, Nichols and Tyler Howard, a financial planner at Penobscot Financial Advisors in Bangor, offered four tips for those who haven’t saved enough to try to get back on track, regardless of their age. A generally accepted goal is to save 15 percent of your current income and plan for the savings to last up to 20 years after the most common retirement age of 67.
Know your numbers
Howard recommended that people look carefully at what they are spending and at their social security benefit and figure out how much they will need to save to live affordably in retirement. The Social Security Administration mails annual updates on the benefit.
Everyone’s savings needs will be different depending on the retirement lifestyle they desire, he said. Someone wanting to travel will need more. Others close to retirement who haven’t saved enough may have to continue working or consider taking out a reverse mortgage on their home under which they borrow money against their home equity.
Find places to cut expenses
Howard recommended that those who are behind in saving cut back on luxuries now. A $3 cup of coffee on the way to work five days a week can quickly add up to saving $15 a week and $780 a year.
Even small spending cuts can make a difference over time. Other places to look for savings are television, cell phone, insurance and other living expenses. Call the companies and see if you can negotiate a better deal, he said.
Pay down credit card and other unsecured debt
Nichols said someone who could contribute to a 401(k) or pay down a credit card, but not both, should opt to pay down the credit card. That way, a retiree won’t be straddled with ongoing debt that is accruing interest, and they will need less money to live off of because they aren’t paying those monthly bills.
Educate yourself
Learning about your cash flow and thinking into the future can help people strategize their retirement savings. Someone starting a family should question whether they need a new car or if a lower cost used car can free up money for necessities and savings, Nichols said.
People also should learn about the differences in Social Security payments before considering retirement. Workers can retire at age 62 at the earliest, but they will get the lowest monthly payment. Income increases with age, with the most monthly Social Security benefits available when a person turns 70.
Currently, some 19 percent of elderly households in Maine rely on Social Security for 90 percent of their income. Working households in Maine have only $2,500 average retirement savings.
The Maine Retirement Savings Program could boost that. The plan requires employers with five or more employees to automatically enroll their workers in the program by the end of 2024. Workers can opt out.
In an aging state that already has the highest median age in the nation, retirees play a critical role in Maine’s economy. State and local government pensioners alone supported 9,600 jobs paying close to $500 million in wages in the state in 2020, according to the National Institute on Retirement Security. Each pension dollar spent supported $1.45 in total economic activity in Maine.
People of any age wanting help with savings should not shy away from getting help from a professional planner, Nichols said. The state offers descriptions of the different types of financial advisors.
“We’ve all got thick skin here in Maine and we are proud people, but it is important that you find someone that you can have some comfort talking to,” he said. “Don’t be scared to talk to someone.”