Haven't saved enough for retirement? What to do?

Rodney Brooks | USA TODAY

A new report paints a rather grim assessment of how prepared we are for retirement. "The Retirement Savings Crisis: Is it Worse Than We Think?" from the Washington, D.C.-based National Institute on Retirement Security, says the typical American family has only "a few thousand dollars" saved for retirement.

"We have millions of Americans who have nothing saved for retirement," says Diane Oakley, executive director of the NIRS. "We have 38 million working-age households who do not have any retirement assets."

For people 10 years away from retirement, the median savings is $12,000. "Of the people between 55 and 64, one third haven't saved anything for retirement," Oakley says.

That's not news to retirement planners, most of whom have clients with considerably more assets than the average American. But believe it or not, it's often news to the people who come for their advice. One of the most uncomfortable conversations planners say they have with clients is the one in which planners tell clients they're not financially ready to retire because they haven't saved enough money.

"Those are some of the hardest conversations we have to have," says Bill Allen, vice president at Schwab Private Client Investment Advisory. "People realize very quickly that how they are living today may not be the way they are set up to live in retirement."

Susan Fulton, president and founder of FBB Capital Partners in Bethesda, Md, says, "Ninety percent of Americans will not be able to retire on savings and Social Security." The amount of money saved for retirement by the average American is "appalling, terrifying," she says

After that uncomfortable first conversation, what's the advice from financial planners?

"The reality is that most people who haven't saved can't catch up," says Fulton. "They can make it a little better, but they can't catch up. Time is more important than money."

Still, financial planners say there are strategies to try to improve the situation. Some will have to sell their homes and move to a cheaper place, Fulton says. Others need to face the reality that they can't afford to retire in the homes or areas they've lived in for years, and must move to a lower-cost location.

"They need to think about what tactics they might do to make adjustments to their monthly cash flow," Fulton says. For example, if you live in Washington, D.C., Fulton says you may need to think about Hagerstown, Md. "If you live in New York City, you may need to think about Woodstock."

Then there are some common-sense strategies. You can delay retirement and continue in your present job. With the time you have left, max out your 401(k) contribution. Take advantage of the catch-up provision in your 401(k) if you are over 50.

"Get serious about developing your expectations for retirement," says Chip Castille, BlackRock managing director and head of U.S. and Canada defined contribution. "What are your needs going to be? Where will you live? How long do you expect to live?"

What you should not do is try to make up for lost time with a more aggressive retirement portfolio. That could lead to disaster.

But there are other strategies for those close to retirement:

• Increase savings/reduce expenses. This strategy is very simple, but unpopular, says Allen. "You can begin to save more now and spend less now. "

Consumers "need to take an honest assessment of their current situation," Fulton says, lookng at "how they are spending and how much they need to. Then they need to think about what tactics they might do to make adjustments to their monthly cash flow."

Allen says saving more and cutting expenses can have double the impact. You're reducing your cost of living before retirement, while also increasing your retirement nest egg. "If you can lower your standard of living before retirement, your nest egg doesn't need to be as big," he says.

Some people may have to make hard decisions about what to keep and what to cut, says David Richmond, president of Richmond Brothers in Jackson, Mich. -- whether it's cable TV or vacations. "We try to provide for them in reality a couple of different options. We don't say you can't retire. We try to say, 'Here's what that would look like.' "

• Maximize Social Security benefits. Richmond says most people think the biggest Social Security decision is whether to take it at 62 or wait. "But if you look at Social Security and you are a married couple, there are 81 different strategies on how to claim Social Security. Most people have no idea which of those 81 maximizes Social Security so you get the maximum amount of money. The difference can be significant. The difference between the best and worst claiming strategy is $100,000 to $125,000 over their lifetime."

• Get out of debt. This is especially important in the last 5 to 10 years of a working life, says Richmond. He says people began to reduce debt because of the financial crisis, but they are starting to borrow again. "People are going back into debt. The average person with a mortgage and two car payments could be paying $1,000 for the mortgage and $1,000 for the car payments between two of them. If you look at $2,000 a month, and they are retiring on $5,000 a month, 40% of income goes to that debt. If they can get that debt down, it is a huge standard-of-living impact."

• Continue working, even if it's part time. "You need to take a look at what else you can do when you leave your main job to continue to work part time," says Fulton. "Consider consulting or even working in a grocery store. You need to look for a job."

• Delay retirement. "As hard as it is, you have to have the conversations, so they have the choice to not retire," says Richmond. "The people we feel bad for are the people who are referred to us after they retire. That is an uncomfortable situation. We say, 'This is what your portfolio will do,' and it's not necessarily what you want to do."

"If you plan to retire at 65, wait and retire at 67," says Allen. "During that time, save more and spend less.

"Saving for retirement is hard, but it doesn't have to be hopeless," he says. "Once people come in and take that breath and start those conversations, there is an empowerment that comes with knowing."