The 71.6 million men and women of the postwar baby boom generation began approaching retirement age eight years ago. But it will be another twelve years before the entire generation reaches full retirement age.
How exactly is retirement shaping up for the generation that went from Woodstock and Watergate to iPhones and Instagram?
A new survey from the Transamerica Center for Retirement Studies estimates that average boomers’ retirement savings total $202,000. That might sound like a respectable amount of cash, but that produces just $8,080 a year or $673 a month.
In many cases, this money is lost to income tax as well. With that in mind, here are three proven strategies that baby boomers may want to seriously consider to bolster their retirement nest eggs.
Work longer and delay Social Security
Working longer not only delays taking money from your retirement investments, which allows them to continue to grow your earnings, but it also pushes back the age at which you should start collecting Social Security payments.
Take this $202,000 investment portfolio. Invested in a conservative portfolio that returns 5% per year – the historical average return on stocks is 11.9% – this money will grow to $233,840 in three years. Assuming you follow the 4% rule for withdrawals, that would come to $9,354 per year — an increase of $1,274 each year.
When it comes to Social Security, delaying retirement until you reach your full retirement age increases your monthly benefit by 8% per year until payments are completed at age 70.
A Boomer born in 1955 would reach the full retirement age of 66 years and 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 a month.
Add that to the increased payout from allowing your investments to grow, and that three-year delay before retirement adds $506 in income per month, or another $6,074 per year.
Find a “return” opportunity.
Working part-time in retirement is another way to increase your investments. In fact, a growing number of companies are encouraging older workers to cut down on part-time work rather than retire entirely, and many companies offer “returns” for older workers who want to switch to a new industry or type of job.
Part-time work doesn’t have to be particularly well-paid either. Working 15 hours a week at the current federal minimum wage of $9.87 would net you $7,106 a year before taxes.
Sure, that doesn’t seem like much, but apply the 4% rule and that $7,106 in income equals adding $177,660 to your investment portfolio.
Cut your expenses
Finding ways to reduce your expenses in retirement gets a lot of bang for your buck because you’re saving money after taxes. Try to look for recurring monthly expenses that you can cut because that means you see those savings every month.
Other savings opportunities include paying off a mortgage or other debt before you retire, downsizing your home, off-season travel, taking advantage of senior discounts, comparison shopping for insurance, or switching from a two-car household to a one-car .
Maximize your retirement accounts
For Individual Retirement Accounts (IRAs), anyone over age 50 can add $1,000 in “catch-up” contributions each year to a regular IRA or a Roth IRA, over and above the general limit of $6,000 per year.
You must earn at least what 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 workplace retirement account, 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 limit. In many cases, employers match set amounts of your contributions, which are about as close as free money gets.
What to read next
This article provides information only and should not be construed as advice. Provided without warranty of any kind.