Thousands of U.S. baby boomers turn 65 every day. And, although our society operates on the assumption that 65 is the go-to retirement age, relatively few boomers are financially prepared for retirement. How unprepared are they? Nearly half of all baby boomers admit that they have less than $50,000 saved for retirement. Even if you’re part of that group, it’s not too late. You can maximize your retirement income and boost your Social Security benefits.
Why Aren’t People Saving for Retirement?
Answering this question is complicated, because there are a number of issues affecting all Americans and their ability to save, not just boomers.
First, nearly two-thirds of Americans report that they either don’t earn enough to save or that they struggle just to pay their bills. If it’s a challenge just to keep food on the table and the lights on, saving for retirement is likely low on your to-do list.
Next up are the financial hits most investors experienced over the past 15 years. The Dot Com crash in the early 2000s sucker-punched a lot of people’s retirement savings. Only a few years later we lived through the housing crash and resultant economic depression. Even if you saved diligently and conservatively, your nest egg likely gained a few cracks. Luckily, there are ways to boost your savings and maximize your retirement income.
Delay Your Retirement
This is probably the most impactful thing you can do to boost your retirement savings and income. First, obviously, it delays the day you begin drawing from your retirement account. That means interest keeps accruing and the balance keeps growing. Delaying your retirement date also makes it possible to do each of the following.
Take Advantage of Catch-Up Contributions
Once you turn 50, maximum allowable contributions to both your 401(k) and IRA increase. As of 2018, investors over age 50 can deposit $24,000 annually into their 401(k) and $6,500 into an IRA. These are known as catch-up contributions. Before age 50, the maximum contributions are $18,000 and $5,500 respectively.
The government implemented these changes in response to the growing number of would-be retirees who’d have to rely solely on Social Security.
Maximize Your Social Security Benefit
Although Medicare benefits begin at age 65, Social Security doesn’t work quite the same way. You only reach full retirement age at 65 if you were born in 1937 or earlier. For everyone else, it looks like this:
If you retire early, i.e. before you reach the full retirement age, your monthly benefit is reduced. For example, if you retire at 62 and were born between 1943 and 1954, you lose a whopping 25 percent. However, if you delay retirement, your benefit increases thanks to a little something called delayed retirement credits. The amount varies according to the year you were born and the number of months you delay retirement.
For everyone born after 1943, the increase is 8 percent every 12 months (two-thirds of a percent every month). So, if you could have retired at age 66 and wait until age 70, that 8 percent yearly increase gives you 132 percent of the original benefit (8 percent X 4 years). That means that, for every $100 of your regular monthly benefit, you get an extra $32 per month.
Those extra funds add up quickly. For example, the average Social Security benefit as of June 2018 was $1,413.37 per month. If you retire at 70, though, that monthly benefit increases to $1,865.64 ($1,413.37 X 132%). That’s over $450 per month, every month, for the rest of your life.
Please note that your benefit stops increasing once you turn 70.
Start an Encore Career
You can retire from your main career and still delay collecting Social Security by staying in the workforce in another capacity. Known as an encore career, many people choose this path when they get older. First, it allows them to do the kind of work they always wanted to do but couldn’t, typically for financial reasons. Second, many people who looked forward to retiring end up feeling bored. An encore career helps them feel vital again.
Encore careers usually involve work that’s personally meaningful to you, even if it isn’t particularly lucrative. There’s even an organization called, appropriately, Encore, that helps people over age 50 find a meaningful second career.
You may want a job doing something fun you’ve always wanted to try, such as work in a particular niche or around your favorite hobby. Another option is a job with a “hidden” paycheck, such as employee discounts and freebies.
Some seniors do freelance work. In the Internet Age, if you can do it on a computer, there’s somebody willing to pay you for it. Graphic design, photography, drafting, writing, research: there are loads of ways to make extra cash as a freelancer. You can also launch a consulting business and put your decades of experience and expertise to work.
The truth is, if you want to find a way to make money, you have numerous options. You just need to do a bit of research and maybe some outside-the-box thinking.
Downsize Your Spending
If you’re nearing or at retirement age, chances are you have plenty of room to downsize. This could mean a smaller home or fewer vehicles, but also accumulated cuts. Most budgets have quite a bit of fat on them. Look carefully at yours to see where you can begin trimming. Preferably, you do this at least a few years before you retire, so you have a chance to sock away those monthly savings in your personal retirement account.
Talk to a Financial Planner
Sometimes, it’s worth it to talk to an expert. Financial advisers help you figure out where to make cuts, explain tax incentives, offer savings advice, and much more. Make the most of your time (you’re paying for it, after all) by creating a list of questions and gathering all of your financial information before your appointment.
Healthcare represents a significant expense for most Americans, particularly after they retire. The experts at Medicare Solutions are available to answer your questions about your Medicare coverage. Call us toll-free at 855-350-8101 to talk to a licensed agent.