Ways to Stretch Your Nest Egg - For What It's Worth - Comcast.net Finance

Blame it on falling home values, the inadequacy of the Social Security system, disappearing 401(k)s… and even longer lives. Regardless, most baby boomers are unprepared for retirement.

For many, the outlook is grim: According to a report published by the Center of Economic and Policy Research, in Washington, D.C., the median household for people between the ages of 55 and 64 has seen its net worth fall by nearly 50 percent, from $315,400 in 2004 to $159,800 in 2009.

Meanwhile, retirement confidence levels have slumped to a 15-year low. Only 13 percent of workers said they're confident they'll have a comfortable retirement this year, marking the lowest level since the Employee Benefit Research Institute's annual Retirement Confidence Survey began in 1993. And only 20 percent of respondents said they’re confident they’ll retire comfortably at some point in the future, according to EBRI.

To add insult to injury, there's recent news that Social Security and Medicare funds will run out sooner than previously expected. But enough with the gloom and doom. Believe it or not, there is some good news out there. Your nest egg may be shrinking faster than you can say "retirement," but there are ways to maximize its value in these tight-budget times.

Secret Strategies

SmartMoney magazine's Angie Marek provides tips for getting more value out of a smaller nest egg, such as spending money in regular IRAs before tapping Roth IRAs. The latter aren't taxed, and if U.S. tax rates rise to pay off our current deficits as expected in years to come, then you can sidestep this potentially steep expense in your retirement years.

Marek offers up additional suggestions, like postponing pampering and delaying retirement. If you put instant gratification temporarily on hold, the savings could be well worth it.

While there's no better time than now to shun self-indulgent pampering (spa addicts and fine-dining aficionados, that means you too), there's also no better time to save. This is especially true for those nearing retirement. As reported in a recent AP story by Jeannine Aversa, the American personal savings rate hit a 14-year high this April, reaching 5.7 percent. In comparison, the personal savings rate averaged slightly over 0.5 percent just two years ago.

Even when it comes to ailing Social Security, there are strategies to consider. Larry Swedroe of MoneyWatch.com shares a way for married couples to draw a larger payout, by immediately suspending the higher-earning spouse's benefits. With this tactic, the higher-earning spouse can eventually receive up to a 32 percent higher benefit.

Be Layoff Savvy

Baby boomers at or nearing retirement age know best from years of experience; it's not the hurdles we face that matter, but how graceful we are while we overcome them. A recent hurdle for many Americans: layoffs. As explained in a recent Money video clip, "Laid off? Don't stay in 401(k)" there are ways to gracefully handle your 401(k) in the event that you’re no longer with your employer.

The video starts off by urging the recently unemployed to take their money out of their former company's 401(k) plan and roll it over to an IRA. This is nothing new. Long-term continuity of any company is uncertain, and in your own IRA, you can be more selective and work closely with a financial advisor to gain better control of your money.

However, a less-known bit of advice follows… If you happen to have your former company's stock in a 401(k) account and it's highly appreciated, there are big tax breaks to be had. You can pull this out as a qualifying lump-sum distribution (still as stock) and put it in a taxable brokerage account. You'll have to pay tax only on the cost basis, and won't be required to pay net unrealized appreciation (NUA) until you sell the stock.

If you need this money in the near future, you're in luck -- since long-term capital gains rates are now at only 15 percent. Had you instead put the stock in an IRA, distributions would be taxed as ordinary income at a much higher rate.

Adopt a Broader Perspective

Today, many Americans are widening their perspective to factor in more than just their household and any unexpected obstacles along the way. They're increasingly considering their parents' financial situations, too. According to Age Wave’s 2009 Retirement Tipping Point Report, 40 percent of adults in the "Sandwich Generation," ages 40 to 60, are worried about financially supporting their parents or in-laws. If this resonates with you, it's helpful to work closely with a financial advisor to assess your priorities and realign your strategies sooner rather than later.

For others who simply haven't paid enough attention to their retirement plan in the past, now's the time to get your ducks in a row. Surprisingly, an estimated 58,000 people have left an average of $2,600 in unclaimed retirement plans, according to PenChecks, Inc.

Since retirement assets are not sent to state unclaimed property programs like other abandoned accounts, neglected plans often go unnoticed. Visit The National Registry of Unclaimed Retirement Benefits to check if there's any retirement money out there that you've lost track of along the way. You might just be one of those to stumble on a hidden treasure.

Is your retirement planning on track? Are you concerned about a diminishing nest egg? Have you heard about any smart strategies lately? Speak out here.

Message Edited by Renee_DeFranco on 06-04-2009 12:33 PM