Among workers age 55 or higher and getting closer to retirement, close to 50% have saved less than $100,000, according to the Employee Benefit Research Institute. Approximately a third has less than $25,000 put away for retirement.
The savings shortfall means many Americans face the prospect of retiring solely on Social Security, which provides just 40% of pre-retirement income for the average worker retiring at 65, according to the Center for Retirement Research at Boston College.
But those looking at retirement within the next 10-15 years do have some opportunities to improve retirement income.
The best way to catch up on savings is to maximize contributions in workplace 401(k) accounts with employer matches, or IRA savers over the age of 50 also benefit from higher “catch-up” limits on tax deferred savings. For 2016, the combined couple contribution for 401(k) accounts is $24,000; for IRAs, it is $6,500.
Ramped-up savings later in life can still generate significant retirement savings. A couple with combined income of $100,000 saving 15% at age 51 could accumulate close to $400,000 by age 65.
Wait to File
For many households, waiting to file for Social Security offers the best opportunity to increase retirement income. Benefits, adjusted annually for inflation, can be claimed as early as age 62 but monthly benefits increase 8% for every year that you wait to apply for Social Security. (Credits for delayed filing are available until age 70).
With current investment options, there is likely no better return than the 8% offered by waiting to file for Social Security.
Working longer provides additional benefit by reducing the number of years a retiree must rely on savings, increases years of retirement contributions and provides the benefit of a delayed Social Security claim.
Review and Plan
It’s never too late to spend time with a financial planner that can access your individual situation and chart the safest plan to retirement savings. It’s estimated that retirees need to replace 55% – 80% of pre-retirement income to maintain their standard of living.
Taxation of retirement income plays an important role in determining how long retirement savings will last. Figuring out whether to draw money from taxable accounts or tax-deferred 401(k) and IRAs will depend on your projected income and tax bracket. Again, advice from a trusted advisor can assist with withdrawal strategies to minimize taxes.