A couple of issues ago, we wrote about working longer as a way for those who have fallen short of their retirement income goals to attain a comfortable retirement. That article focused on the value of enhancing your Social Security benefits by 1) delaying your application for Social Security; 2) increasing the wage base that is used in computing your monthly benefit; and 3) having more time to contribute to the Thrift Savings Plan.
Those aren’t the only tools available if you want to enhance the money that is available to fund your retirement. In this article, we’ll look at two more strategies: 1) working part-time after retirement; and 2) downsizing your principal residence or moving to a lower cost of living area.
If working longer in your federal job is not an option because: 1) you hate it; or 2) you are subject to mandatory retirement; then you can work part-time after retirement. Working part time will allow you to delay applying for Social Security, thereby letting it grow to a larger amount. It will also keep you occupied – not everyone adapts well to having an extra 45 to 50 hours a week to fill. There’s nothing to stop you from working full time after retirement too; that is, if you want to. When thinking about working after your federal retirement, plan on working at something that you enjoy and/or that uses skills that you already possess.
If working after retirement is the last thing you want to do and you have a lot of home equity, consider downsizing or moving to a lower cost of living area; or both. Some people who have lived for a long time in a high cost of living area have accumulated home equity in the high 6-figure range. They also might not need all the room they once needed when they were raising their children (in fact, reducing the number of bedrooms in your house is a great way of keeping your children from moving back in). Even if you remain in the same area, you will realize savings from downsizing. In addition to the difference between what you sold your house for and what you paid for the new house, you will also find that expenses (e.g., taxes, utilities, etc.) will be lower for your new, smaller residence.
If you move to a lower cost of living area you will pay less for a similar home, even less if you also downsize, resulting in you having more money to shore up your retirement income. Figures show that most people do not relocate after retirement, so the relocation strategy doesn’t work for everyone. A study from Boston College’s Center for Retirement Research, that was reported in FEDweek’s Retirement and Financial Planning Report back in 2020, noted that 17% of retirees moved at the time of retirement and an additional 16% mover later in retirement, generally when health concerns require it.
What about paying taxes on the capital gain you received from selling your principal residence? You probably will have little or no tax liability due to the sale. If the home you sell has been your principal residence for two of the previous five years, you may exclude $250,000 of capital gains from taxation, $500,000 if your filing status is joint.
There are plenty of strategies to enhance your finances in retirement, however, if you’re young and the strategies we’ve discussed in this and previous articles really don’t appeal to you, there is something you can do right now. That is, contribute as much as you can to your TSP so that (hopefully) there will not be any income shortfall you have to make up by the time of retirement.