Running out of money in retirement is a real concern for today's workers. Inflation has driven up costs sharply over the last few years, and Social Security's buying power continues to dwindle, putting a greater strain on seniors' personal savings.
Workers are increasingly having to get creative about how they fund their retirement, either through working a part-time job or relying upon family members for support. But there's another option that might appeal to some, and it could decrease the risk of a retirement shortfall by an estimated 48%.
Image source: Getty Images.
Boost your savings and reduce your expenses at the same time
There are two key strategies to preventing a retirement savings shortfall: You can increase the size of your nest egg, or you can reduce your retirement expenses. You can also do a bit of both. One of the most effective ways to pull this off is to delay your retirement.
Doing so gives you additional time to save for your future while also allowing your existing savings to remain invested, so they have longer to grow. At the same time, it reduces the length and cost of your retirement. Even your Social Security benefits will increase if you're willing to wait.
Delaying retirement just a few months can make a noticeable difference, but delaying several years can drastically reduce your risk of running out of money prematurely. A Morningstar survey found that putting off retirement from 62 until 70 nearly halves your likelihood of experiencing a retirement savings shortfall, reducing it from 54% to 28%.
The results were similar across the three groups -- couples, single males, and single females -- but single females faced the highest risk of running out of money in retirement across all ages.
It's not for everyone
Delaying retirement is worth considering if you're concerned about your finances and can afford to continue working. But not everyone is that lucky. Health issues, family caretaking obligations, and job loss force people to retire earlier than they planned all the time.
You might be able to work around this by finding new employment or considering part-time work that you can fit in around your other obligations. If this isn't possible, you may need to fall back on other sources of support, like Social Security and other government benefits, to help you cover what your retirement savings doesn't.
If you were already planning to work well beyond typical retirement ages, that's fine. But it's important to continue saving as if you might have to retire sooner than expected. If everything goes as planned, you'll have some extra cash you can put toward things you enjoy or pass on to your heirs. But if things go sideways, you'll be glad to have those extra savings to cover your living expenses.
No matter when you plan to retire, be ready to adapt your strategy as your circumstances change. Reevaluate how much you're contributing to your retirement accounts and how much you expect to spend in retirement each year. Then, make whatever adjustments are necessary to keep yourself headed in the right direction.
