Investors retirementThe average American will face a 28% income shortfall in retirement, according to a recent survey by Fidelity Investments. And that's just the broad percentage: In dollars-and-cents terms, Gen Xers will be scrambling to find an extra $1,700 a month to cover living expenses, while baby boomers will fall a whopping $2,100 a month short of what they need to maintain their current standards of living.

That may sound like an insurmountable problem, but don't throw in the towel. As Fidelity's Kathy Murphy says, "finding the money to fill the income gap is not unattainable."

But if you want to do so, "take action now -- and the sooner the better."

Here are five relatively easy steps you can take -- some as soon as today -- that will help prevent an income deficiency when you do retire.

1. Boost Your Stock Exposure.

If you're 40 or younger, adding a higher percentage of stocks to your portfolio with a lower allocation to bonds will allow your portfolio to grow more quickly than if you were in a "safer" allocation focused on a higher bond exposure.

Stocks have historically grown at roughly 10% a year, but even an allocation of 83% stocks and 17% bonds (as Fidelity hypothetically uses) could return 8.4% a year.

Unfortunately, if you're older than 40, a higher allocation to stocks is riskier and -- although it could help your portfolio grow more rapidly -- could have a detrimental effect on your investments if you retire during a bear market.

2. Save More. A Lot More.

Most Americans still don't participate in employer-sponsored retirement plans like 401(k)s. And this is a colossal mistake.

Many employers will match contributions, essentially putting free money into your account. Plus, a savings plan like a 401(k) is an easy way to force yourself to save. Money will come out of your paycheck before you can ever touch it.

For both baby boomers and younger workers, ratcheting up your contributions to an ideal 10% of your salary alongside a hypothetical employer match of 3% will have a huge, positive effect on your portfolio when you retire.



3. Wait a Little Bit Longer to Retire.

This tip may not be an easy one to accept, but it could have nearly as large an effect on your retirement income as boosting the amount you save.

First, working longer means a few more years of contributing to your 401(k) and a few more years of letting the contributions you've made over your career continue to grow. And this means you'll ultimately have more to withdraw when you eventually retire.

Second, it means you'll be able to delay relying on Social Security -- a move that could result in as much as a 76% higher payout.

The only caveat to this is that if you're in your 20s or 30s, you'll be retiring when the Social Security system is facing serious strain -- so you'll want to put more of an emphasis on working longer to save even more money.

4. Get an Annuity.

Annuities often get a bad rap -- and for good reason. Many are expensive, designed to rip you off rather than give you the assured stream of income you're after.

But although there are trade-offs that come with even the best annuity, the upside is that you have assurance that at least a portion of your money will safely be there for the remainder of your life.

You don't need to buy an annuity with all the money you've saved -- in Fidelity's example, annuitizing just 40% of the portfolio turned out to be a smart move.

This tip is especially helpful if your family has a history of celebrating 100th birthdays.

5. Receive Help from Your House.

The trick here isn't to apply for a reverse mortgage, or take out a home equity loan. But when you retire, chances are you won't need as large a house as you're used to.

By trading down to a smaller house (or even moving to a less expensive area), you'll have additional money you can put toward living expenses in retirement.

How Much Will These Tips Net You?

In Fidelity's hypothetical calculations, these five tips resulted in a Gen Xer with a $225-per-month surplus when he retired. And the baby boomer -- who began with a monthly shortfall of $2,100 -- was able to close that income gap substantially and end up with a shortfall of just $375.

Of course, there are even more useful methods to ensure a wealthy retirement -- many of which could close that gap even further. But whichever path you decide on, you will always have to be the one to take the first steps.

This article was written by Motley Fool analyst Adam J. Wiederman. Click here to read Adam's free report on how to ensure a wealthy retirement.


Increase your money and finance knowledge from home

Timing Your Spending

How to pay less by changing when you purchase.

View Course »

Understanding Credit Scores

Credit scores matter -- learn how to improve your score.

View Course »

Add a Comment

*0 / 3000 Character Maximum

18 Comments

Filter by:
jhon_potter

Great Article,
Reverse mortgage loans can provide you additional income in your retirement years which can improve you quality of life.

http://www.reversemortgagelendersdirect.com/

March 31 2013 at 8:21 AM Report abuse rate up rate down Reply
alscotti57

better get used to pushing a shopping cart, picking up cans and bottles, and eating pet food in your golden years, but dont worry all the social programs are going to take care of illegals who never worked in the US and their slew of kids. now thats some hope and change...............ha ha ha

May 16 2012 at 8:22 AM Report abuse +1 rate up rate down Reply
barbrose

I find this advice insulting to people who have worked all their lives and are now betrayed by the idiotic US
government who refuses to tax organized religion and who gives away more benefits to the US military overseas murdering people in our pointless wars. Every time one of these people gets killed, the government now shells out more benefits. Why not some benefits for the Boomers instead of being slapped with "tighten your belt" blather................

May 16 2012 at 2:45 AM Report abuse +1 rate up rate down Reply
cdterm47

Learn how to grow food. Learn how to can food. Lay in otc medicine with long shelf life. Lay in dried food-- especially pasta then rotate it. Very simple. With inflation, very common sense. Only if you cannot open a pasta package and boil water cause obstacles. Thus, if your a democrat you may need assistance from a social worker.

May 15 2012 at 8:06 PM Report abuse +1 rate up rate down Reply
bdgrizcp

Where do they get these numbers from? Why do 'experts' assume that retirement is more or as expensive as life before the golden years? The fact is: retirement can be a LOT cheaper. Let's review: no more commuting, for starters. Less gas, parking, tolls, mass transit, less upkeep for vehicle. No more dressing for work. Lunch: unless you've been brownbagging for forty years, lunch is a regular expense. Dinner: when dinner at 8 becomes dinner at 5:30 it's cheaper. And eventually you'll get tired of the massive house you've paid for and hardly seen for thirty years move someplace more cozy. Recreation: everything you did on the weekends you now do during the week and it's cheaper. And unless you develop a gambling jones, you'll do fine. You got your health, am I right? Enjoy it. You've earned it.

May 15 2012 at 7:22 PM Report abuse +3 rate up rate down Reply
hows03

look people, the fat lady is singing loud and clear. ssi, medicare, has enslaved this nation. the clue is, work 40-50 years and you will be taking care of. those future promises you pay for are for someone else to enjoy, usually people who havent worked a lick. if you do collect, the average payout is less than a 1000.00 a month. what a return for all that work. until americans can opt out of this scam, slavery is alive and well.

May 15 2012 at 7:03 PM Report abuse +1 rate up rate down Reply
ilm9p

Retire now at no cost to you! 1. Buy grills for yo teef, rims fo yo hooptie, and blow the rest on crack. 2. Claim to be disabled. 3. Sig up for free housing, free utilities, free food, free healthcare, free phones, free cable TV, free everything at your local Welfare office.

May 15 2012 at 1:52 PM Report abuse +2 rate up rate down Reply
1 reply to ilm9p's comment
dontcalld

it's a t party myth - try it you won't survive

May 15 2012 at 2:32 PM Report abuse -3 rate up rate down Reply
mmvernes

I'm gonna have Obama take care of me when I retire - I've taken care of many people thru SS, Medicaid, Welfare, etc. There better be something there for when I retire.........

May 15 2012 at 1:43 PM Report abuse +4 rate up rate down Reply
1 reply to mmvernes's comment
ilm9p

Right on, baby! Right on, right on, right on!

May 15 2012 at 1:49 PM Report abuse +4 rate up rate down Reply
ThinkUp70

It's difficult to believe that a country such as ours, with such a demanding emphasis on education, contains a population that cannot rule a piggy bank, much less checkbooks and "little plastic cards".
Even our so-called economists can't keep track of any form of spending, thus putting our economy at risk, instead of having all departments paid ahead of time, and having a lot of "full" piggy banks to fall back upon. It's time for Americans to have everything "paid in full".

May 15 2012 at 12:36 PM Report abuse +2 rate up rate down Reply
1 reply to ThinkUp70's comment
gmydogbud

They have and continue to give our money, by the Hundreds of Billions, to countries and people who Hate us and want us Dead! The politicans take care of themselves, their friends, Big Business, Lobbyists, Unions & all those who give them money. They are all bought and paid for & the American People don't stand a chance! The American People need a "Middle Class" Party to look out for them!Money Talks and it talks to both Democrat & Republican Parties!

May 15 2012 at 8:38 PM Report abuse +1 rate up rate down Reply
rgkarasiewicz

The surest way to boost your retirement is not to follow this guy's advice Get this: 1. Boost your stock exposure---the quickest way to total ruin 2. Save more---Oh sure! One can't even keep the car running with the crap jobs that are out there now 3. Wait a bit longer 'til you retire----Yeah, a whole lot longer 'til you croak 4. Get an annuity---Oh right! Trust our future to some frickin' insurance scam 5. Get a smaller home---Home values are tanking with no end in sight, and one can't even sell the existing home without forfeiting the family jewels in the process

May 15 2012 at 10:49 AM Report abuse +6 rate up rate down Reply