Though Social Security can help pay the bills in retirement, it's not designed to sustain seniors in the absence of other income. In fact, those benefits will generally replace about 40% of the typical worker's pre-retirement income, while most seniors require roughly twice that amount to cover their basic expenses and have enough left over to enjoy life a bit.
That's why it's important to save for retirement independently. But a recent Transamerica survey reveals that nearly half of older workers nearing retirement are lacking in this regard.
Only 52% of baby boomers have $100,000 or more socked away for their golden years, which means that a large number of near-retirees are extremely behind in building their nest eggs. If you're one of them, here are a few important moves to make right away.
1. Start ramping up immediately
If you're sitting on under $100,000 in savings, it means your IRA or 401(k) will provide you with less than $4,000 in annual retirement income, assuming you use the 4% rule to determine your withdrawal rate. Throw in the $18,000 a year the average senior gets from Social Security, and that's not a lot of money to live on.
That's why you must start ramping up your IRA or 401(k) contributions as soon as you can. If you manage to sock away an additional $500 a month over the next three years, and your retirement plan generates a conservative 4% average annual return during that time, you'll boost your savings balance by about $18,730. That's not a ton of money, but it's certainly better than nothing.
2. Work longer
Working longer is imperative when you're short on retirement savings for a number of reasons. First, doing so will allow you to leave your existing nest egg untouched for a few extra years. Secondly, it will allow you add to that nest egg -- more so than you would by sticking with your original retirement date. Finally, it could allow you to get more money out of Social Security, which could help compensate for a sluggish IRA or 401(k) balance.
You're entitled to your full monthly Social Security benefit based on your earnings history once you reach full retirement age, which will either happen at 66, 67, or somewhere in between, depending on your year of birth. But if you delay your filing past full retirement age, your benefits can grow by 8% a year, up until you turn 70, and any increase you snag will remain in effect for the rest of your life.
3. Set the stage for part-time work later in life
If your savings won't provide a lot of income in retirement, you may need to work in some capacity to compensate, so it helps to prepare for that now. Keep your job skills current so you can moonlight as a part-time worker or consultant in your field once you retire, and if your work is more creative in nature, aim to build relationships with potential clients now. You can also start thinking about business ideas in case you're inclined to start your own venture. Either way, you should plan to earn some amount of income in retirement if your savings balance is alarmingly low.
A retirement plan balance of under $100,000 isn't terrible for a 20- or 30-something worker, but if you're already in your late 50s or beyond, it's not a great place to be. By taking steps to make up for minimal savings, you'll put yourself in a better position to avoid financial struggles at a time in life when you really don't deserve them.