Employees save more than ever, with average 401 (k) contributions in the first quarter of 2019 coming in at $ 2,370, according to new research from Fidelity Investments – an increase of 15% last year.
While it's good news, the bad news is that these savings are still not enough to retire comfortably. Researchers also found that baby boomers had an average 401 (k) balance of around $ 357,000. It may sound like a solid figure, but when you retire thousands of dollars every year in retirement, it can only last a decade or so.
If your savings fall short, you have two options: save more now, or work a few years to give you more time to continue saving. For those who are already stretched thin financially, the first option may not be realistic. In that case, they may decide to work as long as they can to build a more robust pension fund.
At first glance, it seems like a smart move ̵
Danger of planning on delayed retirement
There is nothing wrong with working as long as you can. In fact, if your savings are not where you want them to be, it's a good idea to delay retirement. The problem arises when you run the risk of being forced to become an early retirement pension.
More than one-third of workers say they plan to retire for 70 years or later, according to a recent report by the Research Institute for Profitability. However, the survey also showed that the median retirement age was 62, and 43% of retirees said they ended up retiring earlier than they had expected – primarily due to health problems or job losses.
Furthermore, nearly 8 in 10 workers were saying they expected to work in some capacity during retirement, but only a quarter of retirees did. In other words, the workers not only retire earlier than they had planned (lacking the year's value of potential savings), but they also do not earn as much in retirement as they had expected.
If you & # 39; re basing the pension plan on being able to work into the 70's, you can be in for a rude awakening if you are forced to retire earlier than you had hoped. Retiring a few years early cannot seem like a big deal, but there are two major drawbacks: First, you miss more time saving, and secondly, you spend more time on retirement, so you need even more money than you had planned to last for the rest of your life. And if you spend, say $ 30,000 a year in retirement, retiring even five years early could cost $ 150,000 more than you expected.
That is not to say that you should not delay retirement if you are short on savings. But it is important to have a backup plan in case your pension does not go exactly as you expected.
Use the Security to Your Advantage
While ideally not relying on benefits for social insurance for bulk of retirement income, they can be a game exchange if your personal savings do not cut it. That said, choosing the right time to claim social security can affect how beneficial it will be.
An important factor in determining how much you will receive each month is the age at which you begin to claim benefits. You can start picking them as early as 62 years, but if you do, your benefits will be cut by up to 30%. To receive the full amount you have the theoretical right of each month, wait until you reach full retirement age (FRA), which is between 66 and 67 years, depending on the year you were born. If you delay claiming until past FRA (up to 70 years), you will receive a bonus of up to 32% on top of the full amount.
Many people choose to withdraw and demand benefits at the same time, but the two must not necessarily happen simultaneously. In fact, if you have to retire earlier than you expected, it might be wise to delay claiming benefits to earn the larger controls.
The biggest advantage of delaying the benefits is that you get bigger checks every month for the rest of your life. So if your personal retirement savings run dry and social insurance is your only source of income, you can have a little extra each month. There is one thing to keep in mind, but if you go early in retirement and also delay in claiming social security, you will have to survive on your own savings until you begin to receive benefits. If the savings do not last so long and you need social security just to make ends meet, you can have no choice but to claim earlier than 70 years.
Life expectancy is another important factor when it comes to determining benefits. While you cannot predict exactly how long you will be living, if you have reason to believe that you will not spend decades in retirement, it may not be worth it to stay away from claiming social security benefits. On the other hand, if everyone in your family has lived in the 90's or longer, you can endure as long as you can to receive more money each month.
Playing the (educated) guessing game
At the end of the day, retirement planning is a great guessing game. You can plan everything down to the dollar, but if you lose your job a few years earlier than when you expected to retire, the meticulously thought out plan floats out the window. However, this does not mean that you cannot be strategic about your pension choices.
Life will undoubtedly throw curveballs your way. You may be able to work until you are 100 years old or you may be forced to retire at 60 years of age. There is nothing wrong with planning to work anymore, but if you can roll and adjust your plans when unexpected challenges arise, you will be prepared for something.