71.6 million men and women of the post-war baby boom generation began reaching retirement age eight years ago. But it will be another dozen years before the entire generation reaches full retirement age.
So how is the retirement shaping up for the generation that went from Woodstock and Watergate to iPhones and Instagram?
A a new study from the Transamerica Center for Retirement Studies estimates that average boomers’ retirement savings total $202,000. That may sound like a respectable amount of money, but it only produces $8,080 a year, or $673 a month.
In many cases, this money is also eaten up by general income tax. With that in mind, here are three proven strategies baby boomers might want to seriously consider to help fuel their retirement.
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Work longer and delay Social Security
Working longer not only delays cash withdrawals from your retirement investments, allowing them to continue compounding earnings growth, but it also lowers the age at which you’ll have to start collecting Social Security payments.
Take that $202,000 investment portfolio. Invested in a conservative portfolio that returns 5% annually — the stock’s historical average return is 11.9% — that money will grow to $233,840 in three years. Assuming you follow the 4% rule. for withdrawals, that would amount to $9,354 per year – an increase of $1,274 each year.
As for Social securitydelaying retirement until you reach your full retirement age increases your monthly benefit by 8% per year until payments peak at age 70.
A Boomer born in 1955 will reach full retirement age of 66 years and 2 months in 2022 with an average Social Security benefit of $1,668 per month as of spring 2022. Delaying benefits for three years will increase that amount up 124% to $2,068 — translating into an extra $400 a month.
Add that to the increased payout from letting your investments grow, and that three-year delay before retirement adds $506 in income per month, or another $6,074 per year.
Find an opportunity to “give back”.
Part-time work in retirement is another way to increase your investment. In fact, a growing number of companies are encouraging older workers to reduce their working hours to part-time rather than retire entirely, and many companies offer “returns” to older workers who want to move into a new field or type work.
Part-time work doesn’t have to be particularly high-paying either. If you work 15 hours a week at the current federal minimum wage of $7.25, that would bring you roughly $5,100 a year before taxes.
Sure, that doesn’t seem like much, but apply the 4% rule, and that $5,100 in income equates to adding about $128,000 to your investment portfolio.
Reduce your expenses
Finding ways to reduce your expenses in retirement it produces a big bang for every dollar because you save money after taxes. Try to look for recurring monthly expenses that you can cut because this will mean you’ll see those savings every month.
Other ways to save include paying off your mortgage or other debt before you retire, downsizing your home, traveling in the off-season, taking advantage of senior citizen discounts, comparison shopping for insurance or moving from a two-car household to a one-car household.
Maximize your retirement accounts
When we are talking about Individual Retirement Accounts (IRAs)anyone over age 50 can add $1,000 in “catch-up” contributions each year to a regular IRA or Roth IRA, in addition to the total limit of $6,000 per 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 combined IRAs.
If you still have access to a pre-tax retirement account at work, such as a 401(k), 403(b) or 457 plan, you can contribute up to $20,500 per year — unless your plan sets a lower cap . In many cases, employers match certain amounts of your contributions, which is about as close as you’ll get to free money.
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This article provides information only and should not be construed as advice. Provided without any warranty.