Many people aim to retire with $1 million or more in savings. Now the reality is that you don't necessarily need that much money to enjoy retirement to the fullest. But you do need a decent level of personal savings, especially since you can only count on Social Security to replace about 40% of your pre-retirement paycheck.
If you're not happy with the state of your nest egg, you may be wondering whether your senior years are doomed. The good news? They aren't. Here are a few ways you can compensate when your savings aren't as robust as you'd like them to be.
1. Delay your retirement
Say you're nearing retirement and have $200,000 socked away for it. You might assume you'll need that money to last about 20 years, and based on today's life expectancies, that's certainly not unreasonable if you're retiring in your mid-60s.
On the other hand, if you postpone your retirement, your savings won't have to last as many years. The result? A little extra annual income for you.
Furthermore, you don't have to delay your retirement by half a decade or more to make a difference. Postponing that milestone by even a year could work wonders for your financial situation.
2. Boost your Social Security benefit
The monthly Social Security benefit you're eligible to collect in retirement will be based on your wage history -- specifically, the income you earned during your 25 highest-paid years in the labor force. You're entitled to receive that benefit in its entirety once you reach full retirement age, which is either 66, 67, or somewhere in between, depending on your year of birth.
However, if you delay your Social Security filing past FRA, you'll boost your monthly benefit by 8% a year (or about 2/3 of 1% per month), up until age 70. This means that if you're eligible for your full benefit at age 67, waiting to file until age 69 will give you a 16% increase that will remain in effect throughout your retirement.
Going back to our first tip, if you postpone your retirement even a little bit, it could make it possible to hold off on claiming Social Security. And that, combined with stretching your nest egg, is reason enough to do it.
3. Turn your home into an income stream
Many people enter retirement mortgage-free. And at that point, you may have some options if you're not happy with how your retirement savings look.
First, you could sell your home, downside to a less expensive place, and pocket the difference. From there, you can invest your sale proceeds and use that money as ongoing income.
Another option is to look at renting out a portion of your home if its layout allows for that. If you own a smaller property, that may not work, but if your home has a finished garage or basement that can be converted to a separate living space, you can find a tenant and collect monthly rental income that you use to supplement you retirement plan withdrawals and Social Security payments.
It's easy to beat yourself up over a nest egg that's shy of your savings goals, but remember, setting funds aside for retirement isn't always easy. Life can get in the way, and unplanned bills can eat up the money you otherwise would've contributed to your IRA or 401(k). Rather than get down about the state of your savings, use the above tactics to make up for a lower balance.
And remember, living frugally in retirement can go a long way, too. And you never know -- you may find that a more minimalist lifestyle suits you better anyway.