Reading that the typical retirement savings balance for Americans between 65 and 74 years old stood at merely $200,000 as of 2022—the most recent year documented by the Federal Reserve—left me feeling let down yet unsurprised. The difficulty numerous individuals face when saving up for their post-working life isn’t exactly an undisclosed fact.
The issue, however, is that retiring with just $200,000 in an IRA or 401(k), or even less, might place you in a financially vulnerable position after your career ends. If you start withdrawing funds from such a modest IRA or 401(k) account at a certain rate, 4% per year As financial experts have often suggested, this provides you with merely $8,000 in yearly income.
When you include the approximately $23,000 per year that an average retired worker receives nowadays, Social Security That equates to an annual salary of $31,000. For numerous individuals, this may not suffice, particularly considering the ongoing effects of inflation.
If you're nearing retirement with limited financial resources, retirement plan When balancing things out, you might feel motivated to continue with your current full-time employment for an additional few years. If someone had posed this question to me a couple of years back, I would have advised sticking with it.
However, I am no longer persuaded that postponing retirement is the optimal solution to compensate for a deficiency in savings. Rather, I believe there is an alternative strategy worthy of investigation.
The issue with postponing retirement
Several problems arise when relying on postponed retirement for bolstering your savings. Primarily, it presumes you will manage to maintain a full-time work schedule.
When you hit a particular age, securing a full-time role might become challenging. Should you lose your job at 67 through layoffs or because the business shuts down, finding an equivalent position elsewhere could be tough. Despite laws prohibiting discrimination based on age, proving such bias in hiring practices is extremely difficult.
Moreover, you can’t predict whether health problems could render it unfeasible to keep up with a demanding full-time position. Even if your current full-time role stays accessible as you age, maintaining those long hours might severely impact both your physical and mental well-being.
A better solution
Putting off retirement and continuing to work for additional years might increase your IRA or 401(k) savings. However, instead of taking this path, consider an alternative strategy: Stick to your planned retirement date for your main employment, yet simultaneously dive into the gig economy.
One of the great aspects of the gig economy is that you have control over your schedule and can reduce stress levels by opting for less strenuous jobs. Should waking up at 7 AM become challenging as you reach a certain age, you might discover gigs allowing you to start later, perhaps at 10 or 11 AM. Additionally, if sitting at a desk typing all day becomes difficult because of back or wrist issues, you could find roles where you move more frequently, engage in varied activities, which would be beneficial for your overall well-being.
Moreover, moving into freelance work can offer a flavor of retirement while retaining some level of earnings. It may require using some of your savings alongside your Social Security payments; however, these withdrawals could potentially be small. Should your freelance endeavors prove unexpectedly profitable, you might end up not needing to touch your retirement funds at all—or perhaps even increase them.
Theoretically, postponing retirement to compensate for a modest IRA or 401(k) seems like a solid plan. However, in reality, this approach might not be effective. Alternatively, it could succeed but lead to adverse health effects. Therefore, prior to deciding that extending your working years is the optimal strategy to bolster your savings, consider whether you can transition into retirement while simultaneously participating in the gig economy.
The $ 22,924 The Social Security benefit many seniors fail to notice.
If you’re similar to many Americans, you might be lagging several years—or even more—behind on your retirement savings. However, some lesser-known “Social Security strategies” may assist in increasing your retirement income. For instance: one simple method could earn you an additional $ 22,924 More every year! After mastering strategies to optimize your Social Security benefits, we believe you can retired assuredly, achieving the sense of security everyone seeks. Just click here to find out how you can learn more about these tactics.
Check out the "Social Security Secrets" »
The Motley Fool has a disclosure policy .
Post a Comment