Retirement should be a time for enjoying the fruits of your long years of working. However, with increased life expectancy and the rising cost of living, it has become essential to make the most of retirement savings to ensure financial security throughout your golden years. Here are helpful tips for stretching your savings so you can live comfortably on your fixed income and avoid depleting your retirement savings.
Know Your Numbers
It is important to understand your sources of retirement income to determine whether you have enough saved to retire and what your quality of life will look like. You may also aspire to pass down an inheritance to your children or other family members rather than burning through all your accumulated wealth.
Use the Social Security estimate calculator to assess your expected benefits. Also, include any anticipated income from pension plans. Then, calculate your expenses. How much will you need to withdraw from your retirement funds to cover your monthly expenses? Don’t forget to account for taxes in your calculations. With a clear picture of your expected income and expenses, you can assess whether you have enough to achieve your retirement goals or need to boost your retirement savings.
Ways to Boost Your Retirement Savings
While saving for retirement as early as possible is the best strategy, there are also ways to boost your savings as you get closer to retirement age.
- Make catch-up contributions. Individuals 50 or older can add higher contributions to retirement funds to help save more aggressively as they reach retirement age. The catch-up contributions for someone over 50 are currently $1,000 additional for traditional or Roth IRAs, $7,500 for 401(k) plans, and $3,500 for a Simple 401(k).
- Delay Social Security benefits. While you become eligible for Social Security benefits at age 62, delaying your claim until full retirement age (typically between 66 and 67, depending on your birth year) or even beyond can significantly increase your monthly benefits. Delaying benefits also ensures a higher payout for surviving spouses.
- Adjust your investment strategy. Consult with a financial advisor regularly to ensure your investment portfolio aligns with your goals and risk tolerance as you approach retirement. Adjusting your strategy as necessary can help protect and grow your retirement savings according to your plan. This may include switching to target-date funds that minimize risk as you get closer to retirement. Another strategy is to increase the dividend income from your investments.
Often, living the life you want in retirement requires reduced spending. If you plan to prioritize travel or stop working, you may need to cut back on other areas.
- Create a budget. Developing a comprehensive budget is crucial for effectively managing your retirement savings. Track your income and expenses to understand your financial situation clearly. You can allocate more funds toward your retirement savings by identifying areas where you can cut costs or adjust your spending habits.
- Downsize and simplify. As you transition into retirement, reassess your housing needs and consider downsizing. Moving to a smaller, more affordable home can free up cash and reduce expenses such as mortgage payments, property taxes, and maintenance costs. Additionally, decluttering and simplifying your lifestyle can help cut unnecessary expenses. Selling items you no longer need can also bring in some extra income.
Earn Additional Income
While retirement generally means leaving your 9-5 job and career, many retirees find meaning and security in part-time work. Part-time work can be an excellent option if you need additional income during retirement. Not only can it provide a financial boost, but it can also keep you engaged and socially active. Explore flexible job opportunities or consider turning a hobby or passion into a small business to supplement your retirement savings.
Retirement should be a time of enjoyment and relaxation, but financial security is essential to fully embrace this phase of life. By following these tips, including boosting your retirement savings, budgeting, and adjusting your investment strategy, you can stretch your retirement savings and create a solid financial foundation for the future. Remember, every step you take towards maximizing your retirement savings will contribute to a more comfortable and fulfilling retirement journey.
Finances FYI is presented by JP Morgan.