When you think about retirement, you may base your income needs on the type of lifestyle you plan to have and when you want to retire. However, as you grow closer to retirement, you may discover that your income won't be enough to meet your needs. If you find yourself in this situation, you'll need to adopt a plan to bridge this projected income gap.

Delay retirement: 65 is just a number

One way of dealing with a projected income shortfall is to stay in the workforce longer than you had planned. This will allow you to continue supporting yourself with a salary rather than dipping into your retirement savings. Depending on your income, this could also increase your Social Security retirement benefit plus allow you to save and invest more. In addition, you'll be able to delay taking your Social Security benefit or distributions from retirement accounts.

At full retirement age (which varies, depending on the year you were born), you will receive your full Social Security retirement benefit. You can elect to receive your Social Security retirement benefit as early as age 62, but if you begin receiving your benefit before your full retirement age, your benefit will be reduced. Conversely, if you delay retirement, you may increase your Social Security benefit.

Remember, too, that working while drawing Social Security benefits may affect the amount of retirement benefit you receive if you are under full retirement age—$1 in benefits will be withheld for every $2 you earn over a certain earnings limit. In the year you reach full retirement age, different rules apply—$1 in benefits will be withheld for every $3 you earn over the annual earnings limit. Once you reach your full retirement age, you can earn as much as you want without affecting your Social Security retirement benefit.

Another advantage of delaying retirement is that you can continue to build tax-deferred—or in the case of Roth accounts, tax-free—funds in your Individual Retirement Account (IRA) or employer-sponsored retirement plan. Keep in mind, though, that you may be required to start taking minimum distributions from your qualified retirement plan or traditional IRA once you reach age 73 (75 for those who reach age 73 after December 31, 2032), if you want to avoid harsh penalties.

If you're covered by a pension plan at work, you could also consider retiring and then seeking employment elsewhere. This way you can receive a salary and your pension benefit at the same time. Some employers, to avoid losing talented employees this way, offer "phased retirement" programs that allow you to receive all or part of your pension benefit while you're still working. Make sure you understand your pension plan options.

Spend less, save more

You may be able to deal with an income shortfall by adjusting your spending habits. If you're still years away from retirement, you may be able to get by with a few minor changes. However, if retirement is just around the corner, you may need to change your spending and saving habits. Saving even a little money can really add up if you do it consistently and earn a reasonable rate of return. Make permanent changes to your spending habits and you'll find that your savings will last even longer. Start by preparing a budget to see where your money is going.

Earmark the money you save for retirement and invest it. If you can take advantage of an IRA, 401(k) or other tax-deferred retirement plan, you should do so. Deferring the tax to the future may allow the funds to grow more than funds invested in a taxable account.

Consider reallocating your assets

Some people make the mistake of investing too conservatively to achieve their retirement goals. That's not surprising, because as you take on more principal risk, your potential for loss grows as well—but greater risk also generally entails potentially greater reward. With life expectancies rising and people retiring earlier, retirement funds need to last a long time.

That's why if you are facing a projected income shortfall, you may want to consider shifting some of your long-term assets to investments that have the potential to outpace inflation. The amount of investment dollars you might consider keeping in growth-oriented investments depends on your time horizon and your tolerance for risk. In general, the longer you have until retirement, the more aggressive you can typically afford to be. Still, if you are at or near retirement, you may want to keep some of your funds in growth-oriented investments, even if you decide to keep the bulk of your funds in more conservative, fixed-income investments. Get advice from a financial professional if you need help deciding how your assets should be allocated.

And remember, no matter how you decide to allocate your money, rebalance your portfolio periodically. Your needs will change over time, and so should your investment strategy. Rebalancing may carry tax consequences. Asset allocation and diversification cannot guarantee a profit or insure against a loss. There is no guarantee that any investment strategy will be successful; all investing involves risk, including the possible loss of principal.

Change your spending habits

If your projected income shortfall is severe enough or if you're already close to retirement, you may realize that no matter what measures you take, you will not be able to afford the retirement lifestyle you've dreamed of. In other words, you will have to lower your expectations and accept a lower standard of living.

Fortunately, this may be easier to do than when you were younger. Although some expenses, like health care, generally increase in retirement, other expenses, like housing costs and automobile expenses, tend to decrease. And it's likely that your days of paying college bills and growing-family expenses are over. Once you are within a few years of retirement, you can prepare a realistic budget that will help you manage your money in retirement.

The experienced team at Busey Wealth Management is here to help you create a retirement roadmap. Learn more about our comprehensive services at busey.com/wealth-management.

This is not intended to provide legal, tax or accounting advice. Any statement contained in this communication concerning U.S. tax matters is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties imposed on the relevant taxpayer. Clients should obtain their own independent tax advice based on their particular circumstances.

This material is provided for educational purposes only and should not be construed as investment advice or an offer or solicitation to buy or sell securities.

This presentation is for general information purposes only. It does not take into account the particular investment objectives, restrictions, tax and financial situation or other needs of any specific client.