How much money should you aim to retire with? It depends on your lifestyle and goals. But one thing's for sure: You're better off having access to more income during your later years than less. And if you make these important moves, there's a good chance that's what'll happen.
1. Loading up on stocks
Many people fear the stock market because it's volatile and unpredictable. But actually, if we examine its history, there are some pretty clear patterns that pop out -- namely, that the stock market has a tendency to recover from downturns and reward investors who keep their money tucked away for the long haul.
If you're able to get on board with the idea of investing heavily in stocks during your working years, you stand to retire with quite a bundle of cash. Historically, the market has delivered around a 9% average annual return. If you were to contribute $500 a month to a retirement plan over 40 years and invest it heavily in stocks, you might easily score a 7% return over that period (keeping in mind that you'll probably have some of your investments in safer vehicles, like bonds). And that 7% return would give you an ending savings balance of about $1.2 million. On the other hand, if you were to play it safer with your investments and score a 4% average annual return, you'd wind up with around $570,000, all other things being equal.
The takeaway? Loading your portfolio with stocks could help you retire with a substantial amount of cash, which is reason enough to work past whatever trepidations you may be harboring.
2. Saving in a Roth account
Saving in any type of tax-advantaged retirement account is a good way to secure a solid income stream down the line. But if you're looking to get more money for retirement, it pays to house your savings in a Roth-style account, whether it's a Roth IRA or a Roth 401(k).
Some people shy away from Roth accounts because, unlike traditional IRAs and 401(k)s, they don't offer immediate tax savings on contributions. But when you save in a traditional retirement plan, your withdrawals during retirement are subject to taxes. When you save in a Roth, your withdrawals are yours to keep in full -- the IRS isn't entitled to a portion.
Keep in mind that if you're a higher earner, you're barred from funding a Roth IRA directly. Roth 401(k)s, on the other hand, don't have income limits, so if your employer's plan offers this option, you can sign up regardless of your earnings level. If that option is not available, you can still contribute money to a traditional IRA and then convert it to a Roth after the fact.
3. Delaying Social Security
Your Social Security benefits are calculated based on your 35 highest-paid years of earnings, and you're entitled to claim your benefits in full upon reaching full retirement age, which is either 66, 67, or somewhere in between, depending on your year of birth. If you delay benefits past full retirement age, however, you'll boost them by 8% a year up until age 70. And that increase in benefits will remain in effect for the rest of your life.
Imagine that, based on your earnings record, you're entitled to a monthly benefit of $1,600 at a full retirement age of 67. Waiting until 70 to file will increase each individual payment you get to $1,984. That's an additional $4,608 a year of income throughout your retirement, which certainly makes the case for holding off on benefits as long as you can.
The more money you have access to in retirement, the more options you'll have to enjoy your life and do the things you've always dreamed of. Investing heavily in stocks, saving in a Roth-style retirement plan, and waiting to start Social Security benefits could substantially boost your income at a time in your life when you're sure to appreciate it.