A recent study determined that on average, Baby Boomers have an average of $152,000 in retirement accounts. Yet even though that is a nice-sized sum, the reality is that it could be far from adequate when it comes to generating a livable income in retirement particularly given that life expectancy is so much longer these days.
Further, with an average 5-year CD rate standing at less than 0.4%, investing $150,000 would only generate an annual return of $600 which is far less than most people need to live on, even combined with income from other sources like Social Security. So, what can you do to catch up if you’ve fallen behind on your retirement savings?
The good news is that you have options. Strategies for Catching Up on Retirement Savings With low savings rates in the U.S., it is no wonder that the EBRI (Employee Benefit Research Institute) 2020 Retirement Confidence Survey reported that only 27% of individuals feel very confident in having enough for a comfortable retirement.
There are several reasons for this. One has to do with the near disappearance of the traditional employer-sponsored defined benefit pension plan. These plans would typically continue to generate income for the remainder of a worker/retirees lifetime and in some cases, for the lifetime of the individuals surviving spouse, too.
Today, however, most companies offer defined contribution plans such as the 401(k) where the responsibility for generating enough income in retirement falls to the employee, not the employer.
Social Security provides another potential source of retirement income for those who qualify (either though their work record and/or that of their spouse). According to the Social Security Administration, an average wage-earner can typically replace about 40% of his or her pre-retirement earnings with Social Security retirement income benefits.
However, if you wait to file until after you have reached your full retirement age (FRA), you could increase the amount of income from Social Security by up to 32%. Thats because each year that you wait to file (between your FRA and age 70), you can earn an 8% delayed income credit. You can also initiate some strategies for reducing or eliminating taxes on both Social Security and other retirement income sources.
This, in turn, will provide you with more net spendable income in retirement. For example, in some cases, Social Security retirement benefits may be taxable. This is true if you are receiving Social Security before your full retirement age and you are also receiving income from various other sources.
For instance, you may be taxed on Social Security if: You file a federal tax return as an individual and your combined income is: Between $25,000 and $34,000 (up to 50% of your benefits may be taxable) More than $34,000 (up to 85% of your benefits may be taxable) You file a joint tax return, and you and your spouse have a combined income that is: Between $32,000 and $44,000 (up to 50% of your benefits may be taxable) More than $44,000 (up to 85% of your benefits may be taxable) You are married, and you file a separate tax return. Your combined income equals your adjusted gross income plus any non-taxable interest earned, plus one-half of your Social Security benefits. By making sure that you receive Social Security tax-free, spendable income can increase.
You could also take advantage of the Roth IRA. With these accounts, contributions go in after-tax. But the earnings as well as the withdrawals are tax-free, regardless of what the then-current income tax rates are.
While those who qualify for a Roth IRA can contribute up to $6,000 if age 49 or younger, and up to $7,000 if age 50 or older, there are ways that you could boost the amount you have in a Roth account by rolling over money from a traditional IRA and/or retirement plan.
Which Strategies for Increasing Retirement Savings and Income are Right for You?
Everyones financial picture is different. So, it is recommended that you discuss your particular needs with a retirement income planning specialist.