The 71.6 million men and women of the postwar baby boom generation started reaching retirement age eight years ago. But it will be another dozen years before the entire generation reaches full retirement age.
So how is retirement preparing for the generation that’s moved from Woodstock and Watergate to iPhones and Instagram?
A new survey from the Transamerica Center for Retirement Studies estimates the average retirement savings of boomers is $202,000. That might seem like a respectable amount of money, but it only makes $8,080 a year or $673 a month.
In many cases, that money is also being gnawed at by income tax. With that in mind, here are three proven strategies baby boomers could seriously consider to bolster their retirement pools.
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Work longer and delay Social Security
Working longer not only delays the withdrawal of money from your retirement investments, which allows them to continue to increase earnings growth, but it also pushes back the age when you need to start collecting Social Security payments.
Take that $202,000 investment portfolio. By investing in a conservative portfolio that returns 5% annually — the stock’s historical average return is 11.9% — that money would grow to $233,840 over three years. Assuming you’re following the 4% rule for withdrawals, that would add up to $9,354 a year, an increase of $1,274 a year.
On Social Security, delaying your retirement until you reach full retirement age increases your monthly benefit by 8% a year, until payments max out at age 70.
A Boomer born in 1955 would reach full retirement age of 66 years 2 months in 2022, with an average Social Security benefit of $1,668 a month as of spring 2022. Delaying benefits for three years would see that amount increase by 124% to $2,068 – translating to an extra $400 per month.
Add that to the increased payout from being able to grow your investments, and that three-year delay before retiring adds $506 in income a month or another $6,074 a year.
Find a “comeback” opportunity.
Working part-time in retirement is another way to boost your investments. In fact, a growing number of companies are encouraging older workers to cut back on part-time work rather than retire altogether, and many companies are offering “returns” for older workers looking to move into a new field or type. of work.
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Even part-time work doesn’t have to be particularly lucrative. Working 15 hours a week at the current federal minimum wage of $7.25 would earn you about $5,100 a year before taxes.
Sure, that doesn’t sound like much, but apply the 4% rule and that $5,100 income is the equivalent of adding about $128,000 to your investment portfolio.
Cut your expenses
Finding ways to reduce spending in retirement yields a big bang for every dollar, because you’re saving after-tax money. Try looking for monthly recurring expenses that you can cut back on because that means you’ll see those savings every month.
Other savings opportunities include paying off a mortgage or other debt before you retire, downsizing your home, traveling off-season, taking advantage of senior discounts, comparison shopping for insurance, or switching from a two-car household to one car.
Maximize your retirement accounts
When it comes to individual retirement accounts (IRAs), anyone over 50 can add $1,000 in “catch-up” contributions each year to a regular IRA or Roth IRA, in addition to the general limit of $6,000 a year.
You must earn at least as much as you contribute to add to an IRA, and the annual contribution limit applies to all of your IRAs combined.
If you still have access to a pre-tax workplace retirement account, such as a 401(k), 403(b), or 457 plan, you can contribute up to $20,500 a year, unless your plan sets a lower limit. In many cases, employers match pre-set amounts of your contributions, which is as close to free money as you can get.
Get expert financial advice
Even after following all of the advice above, preparing for a comfortable retirement is nerve-wracking, especially with an inflation rate of 7.7% and a potential recession just around the corner.
According to the Federal Reserve, only 36% of non-retirees thought their retirement savings were on track as of 2021. One solution is to find a financial advisor who can help you manage your finances and make sure your assets are safeguarded.
Finding and calling multiple financial planners can be a time-consuming hassle, but there are ways you can easily consult vetted advisors that fit your needs. Booking a consultation is free and only takes a few minutes.
If you’re not sure how to safeguard your savings during a recession, it’s high time you find a financial advisor.
This article provides information only and should not be construed as advice. Comes without warranty of any kind.