You're in your 60s and haven't saved enough. Here's what to do.

Retirement columnist Glenn Ruffenach also sheds light on converting 401(k)s to Roth IRAs.

  • By Glenn Ruffenach,
  • The Wall Street Journal
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Q: My wife and I are in our early 60s and, for various reasons, haven’t saved enough for retirement. What are your best suggestions for pumping up our nest egg? We already plan to continue working into our mid-60s and, if necessary, beyond.

A: Well, let’s start on a positive note: The fact that you’re asking this question means, presumably, that you have sat down and tried to calculate whether your savings and other sources of income (e.g., Social Security) will allow you to meet your expenses in later life. All of which is more than many people do.

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So…the following steps are some of the best ways to “pump up.” None of these are easy, but each is doable. And each can help anyone approaching retirement, including those who are confident their finances are in good shape.

Keep working. Yes, this idea leads most lists. It’s fine advice, and I’m glad it’s part of your thinking. But, as we have noted several times in this space, planning to work isn’t necessarily a guarantee of work. A recent report from the Transamerica Center for Retirement Studies found that more than half of retirees (56%) retired sooner than they had anticipated because of layoffs, ill health and family responsibilities, among other reasons.

In short, working longer can be a smart strategy to bridge gaps in retirement savings. But you must have backup plans, as well. Which leads us to…

Slash debt. Got a costly auto lease? Get rid of it. Swamped with credit-card bills? Cut up the cards. Older Americans, improbably, are accumulating debt instead of eliminating it. In August, the Federal Reserve Bank of New York reported that individuals in their 60s held $2.16 trillion in debt as of June 30, an increase of 62% just since 2007 (the beginning of the 2007-09 recession) and almost five times the amount of debt ($440 billion) held at the close of 2000.

The math is simple: If you’re carrying too much debt, you likely can’t save enough. And if you aren’t saving enough, a secure retirement will remain out of reach.

Get ruthless with expenses. Several years ago, I spoke with a small-business owner who admitted that he really had no idea how much he was spending until his wife all but demanded they sit down and discuss their finances and future. As it turned out, a year earlier the couple had spent $8,200 on their five dogs and $4,000 on wine. “Now we have a monthly meeting,” the husband said, “and my wife tells me, ‘This is what we have in savings, this is what we have in the checkbook.’ ”

The point: Don’t lie to yourself. Yes, lots of people have a household budget of some sort, but do you know where the dollars are actually going? Dining out? Movies? Gifts to family members? Pets? Hobbies? Gambling? Travel? Electronics? You might be able to take an ax to more costs than you realize. Speaking of which…

Downsize. I know: a tough step. But let’s look at some numbers.

Even if your mortgage is paid off, taxes and upkeep on a home can still put a sizable hole in your wallet each year. Given that annual property taxes nationwide average about 1% of a home’s value (according to the Tax Foundation) and annual maintenance and utility bills average from 1% to 3% (a good rule of thumb, according to financial advisers), carrying costs alone on a $500,000 home total about $15,000 a year. Move to a $350,000 home and the figure drops to $10,500.

Of course, downsizing isn’t foolproof. Depending on where you move, a smaller home could end up costing almost as much as your current residence. Even so, you should begin to see savings in other areas: less money for heating and cooling, for a new roof, for yard work. And those savings will compound over time. Smaller also can be practical. As one retiree told me: “You come to grips with the inevitable, that you can’t maintain a big home forever, physically or financially. It’s bound to get more difficult.”

Q: My question involves converting a 401(k) to a Roth IRA. I am 66 and have been retired for a few years. I understand that I can convert any or all of my 401(k) to a Roth regardless of amount. If I convert a portion of the 401(k) every year for, say, five years until the 401(k) is completely converted, can I still access funds even though there is a five-year gap between the first in and last in?

A: Yes, for the most part, you will be able to access your funds. But we need to look at this from two angles: whether you’re converting to an existing Roth account or a new Roth.

To start, you are correct: You can convert your 401(k) funds, all or part, to a Roth IRA. (Of course, such conversions are subject to taxes; the amount converted would be included on your tax return.) But if you have had any Roth IRA open for at least five years, then the funds you convert from your 401(k) to the Roth are all “qualified,” says Ed Slott, an IRA expert in Rockville Centre, N.Y. That means the funds can be withdrawn tax-free at any time, since you have held the Roth for at least five years.

If this is a new Roth IRA, or a Roth that’s less than five years old, the converted funds can still be withdrawn tax-free at any time. (That’s because you already paid the tax when you converted these funds.) But…any earnings on those funds would be taxable until the Roth IRA was held for five years, Mr. Slott says. But even then, you likely would benefit from what the Internal Revenue Service calls “ordering rules.”

Under these rules, the first dollars withdrawn from your Roth IRA would be considered to come, first, from any Roth contributions and, second, from any conversions. Any earnings are deemed to come out last, so you wouldn’t reach the earnings layer unless all the funds were withdrawn within the five years.

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