Americans in their late 50s or early 60s may have saved money for retirement, but they still fall short of a financially secure retirement. In fact, two-thirds of working households age 55-64 have retirement savings far below what they will need to maintain their standard of living in retirement.
According to a recent project by the Stanford Center on Longevity in collaboration with the Society of Actuaries, the answer is simple but powerful. Find a new work situation that addresses your specific work problems, pays you enough to cover your ongoing living expenses, and allows your current savings and Social Security benefits to continue growing.
The report shows that by using retirement savings to enable delaying Social Security benefits increases projected retirement incomes by up to 6%.
The reason delaying the start of Social Security benefits increases your projected retirement income is that the increase factors Social Security uses to adjust your benefits (called “delayed retirement credits”) are generous to retirees. So, many older workers will get a really good financial deal from Social Security if they can delay the start of benefits as long as possible.
One thing to consider here is lifespan. In generations past, life expectancy was a lot lower than today. Over the last 100 years, people have achieved impressive progress in health that has led to increases in life expectancy. In the United States, life expectancy was around 70 years old in 1970, as opposed to about 80 years old in 2011. As a result, people are outliving their projected retirement savings in today’s generation.
This thought should give you the enthusiasm and the motivation you need to take on the challenges of balancing your work, financial resources, retirement, and making a good plan that works for you for the rest of your life.
Five ways to avoid a shortfall:
Postpone retirement. Working another year or two may allow your savings to grow and reduces the number of years you'll be making withdrawals. You may get a larger Social Security check as well.
Work part-time during retirement. More and more Americans are still getting a regular paycheck during their retirement years. You don't have to stick with a 9-to-5 job, however. Many retirees supplement their income by turning a hobby into a part-time job.
Save more in your plan. Step up your retirement savings while you're still working. Workers age 50 and older can make catch-up contributions to their employer plans beyond the normal contribution limits. If you're already saving the maximum allowed, open or add to an IRA or save money in a taxable account.
Tap into your home's equity. If you own your home, you could move into a less expensive home and add to your retirement savings. Or if you want to stay put, you could examine a reverse mortgage. Carefully consider the reverse mortgage's provisions, fees, and other costs if you go that route.
Reduce your expenses. You could make it a priority to pay off your mortgage before retirement. Or perhaps you could become a one-car family when you retire. Examine your budget carefully for opportunities to cut costs. Stay flexible and adjust.
Remember that no one method of creating retirement income is perfect and that many retirees change their approach as their circumstances change. If the market drops sharply, many retirees will instinctively tighten their belts, and take less from savings that year. Or a series of good returns on their investments might permit them to splurge a bit. All investing is subject to risk, including the possible loss of the money you invest.
Because there are so many factors that you can't control (such as market performance, the rate of inflation, and life expectancy), the more flexible you are the more likely it is that you can maintain a lifelong stream of retirement income.
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