Most people are aware of the importance of saving for retirement. But acting on that can be easier said than done.
If you're not a particularly high earner and you have lots of bills to cover, then carving out money for a retirement savings plan may prove challenging. In fact, it may be that you're already well into your career without having contributed much to a 401(k) or IRA.
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If your nest egg isn't where it should be, you may have every intention of using a boosted Social Security benefit to compensate. Delaying benefits past full retirement age (FRA) will result in a higher monthly payday for life. And that's a good way to make up for a lack of savings.
But delaying your Social Security claim isn't a given. And because of the potential for broad benefit cuts, a delayed filing may not even have the financial impact you expect it to. So a better bet is to do your best to try to find a way to save more -- even if it means making some near-term sacrifices.
A boosted Social Security benefit may not cut it
FRA for Social Security purposes is 67 for anyone born in 1960 or later. And delaying your Social Security claim until age 70 will raise your monthly benefits by 24%. That may seem like a good option when your savings are lacking. But you can't assume it's an option that will be on the table.
Many people are forced out of a job prematurely, whether because of layoffs or health issues. So being able to work until age 70 isn't a given.
Furthermore, Social Security might have to cut benefits to make up for its revenue shortfall. So in that case, a delayed filing may not result in the monthly payday you expect it to. And that's not a situation you or any individual can control.
That's why planning to delay Social Security to make up for missing savings isn't the greatest plan. You don't want to end up struggling financially in retirement because your strategy doesn't end up working.
A better bet? Push yourself to do better on the savings front from this point onward -- even if you've let your nest egg fall by the wayside until now. You may need to make some changes to your spending to allow for higher 401(k) or IRA contributions.
But saving even a few hundred dollars a month over time could go a long way. Socking away $300 a month over the next 20 years will leave you with a nest egg worth around $206,000 if you invest your money at an average annual 10% return during that time, which is in line with the stock market's .
If you can't cut enough expenses to make a nice dent in your nest egg, then you may need to look at getting a second job for a while. And that may not be ideal. But neither is struggling financially in retirement. So rather than run that risk, make sure you have a nice chunk of money to retire on rather than assume that a delayed Social Security claim will be the perfect solution.
