Social Security doesn't provide enough income for most seniors to live comfortably. That's why workers are advised to save independently for retirement -- to avoid a financial crunch later in life. In fact, as a general rule, it's a good idea to close out your career with 10 times your ending salary socked away in a 401(k) or IRA. But what if you're midway through your working years, or even further along, and you fear you're nowhere close to meeting that goal? Here's how to avert a personal financial disaster during your senior years.
1. Invest more aggressively
Whoa, let's back up. If you're short on savings, the best thing you can do is increase the amount of money you're putting into your retirement plan, right? Well, sure, that's a smart thing to do.
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But I'm going to be realistic and assume that if you're currently socking away, say, $400 a month, it's because you can't reasonably afford to save any more. Now if that's not the case, then by all means, boost your savings rate. If you're able to cut back on expenses to a reasonable extent (for example, dine at restaurants less frequently), do so. But many people are already saving as much as they can, and if you're one of them, there's still hope for growing your 401(k) or IRA balance. You may just need to step outside your comfort zone to do it.
What does that mean? If you're currently invested heavily in bonds but retirement is at least 10 years away, dump some (or, better yet, a lot) of those bonds and replace them with stocks. With a stock-heavy portfolio, you might see close to twice the return you'll get with bonds, and that could be your ticket to growing the wealth you need.
Imagine you're 20 years away from retirement and think you'll be able to save $400 a month over the next two decades. Let's also assume you already have $80,000 in savings. If you were to stick with a bond-heavy portfolio that generates an average annual 4% return, in 20 years, you'd be sitting on about $318,000. But if you were to go heavy on stocks so your portfolio generates an average annual 7% return instead, you'd end up with around $506,000. And that paints a more comforting picture.
2. Delay retirement
Boo -- no one wants to work longer than necessary, right? But before you get too bummed out, realize that Americans are living longer these days. If you delay your retirement a year or two, you might still have many wonderful years of post-work life ahead of you. At the same time, though, you'll have an opportunity to boost your savings and also, leave your nest egg intact a bit longer to help that money last.
If the idea of delaying retirement and sticking with your current job sounds horrible, consider an alternative: working for yourself for a few years. You can start a business or become a consultant in your field if you enjoy your work but perhaps can't stand your employer. In fact, you may enjoy working independently so much that you decide to continue doing so part-time during retirement, thereby boosting your senior income.
You need a solid amount of savings to retire securely. If you're not happy with how your 401(k) or IRA looks at present, don't stress. Instead, rethink your investment strategy and consider working a bit longer than planned to stretch your savings as much as you can.
