It's easy to think of retirement as a fairly inexpensive period of life, but actually, in some cases, your costs as a senior could very much mimic your expenses during your working years. This especially holds true if you don't enter retirement with a paid-off home, or experience major health issues as a senior that cause your medical spending to skyrocket.
It's for this reason that all workers are encouraged to save aggressively for their golden years -- to ensure that they have enough money to pay the bills once their time in the workforce concludes. Of course, Social Security does provide some income to seniors, but it's hardly enough to live on. At best, those benefits will replace about 40% of the typical earner's former wages, while most seniors need around twice that much money to maintain a decent standard of living.
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Unfortunately, roughly one-third of baby boomers aren't confident that they've saved enough for their golden years. In a new report by Fidelity, only 66% of boomers think they'll have enough money to maintain the retirement lifestyle they want. If you're not happy with your future financial prospects, there are a few key moves you can make to improve your outlook -- and help ensure that you're able to enjoy retirement to the fullest.
1. Take advantage of catch-up contributions
The good thing about being 50 or older is getting more leeway with your retirement plan contributions. Though younger workers can only contribute up to $6,000 to an IRA each year and up to $19,500 to a 401(k), these limits increase to $7,000 and $26,000, respectively, among workers 50 and over.
Now, imagine you're sitting on $300,000 in retirement savings by age 60 and want to retire in seven years. If you manage to max out your 401(k) during that time, you'll wind up with a balance of $568,000, assuming your investments generate a conservative 3% return. That's almost twice your starting point.
2. Extend your career
Working longer can improve your financial picture in retirement in two regards. First, it gives you a chance to boost your savings. Imagine that in the aforementioned scenario, you max out your 401(k) at today's rates for 10 years instead of just seven. All other things being equal, you'll increase your savings balance to $701,000.
Also, working longer could allow you to hold off on claiming Social Security. For each year you delay benefits past your full retirement age, they grow 8% -- for life.
3. Plan for part-time work
Working part-time in retirement is one of the smartest financial moves you can make. Not only is it a good way to generate extra income, but it can help you avoid spending money by giving you something to do with your time.
Furthermore, while working during retirement once meant signing up to manage a cash register or hand out food samples at a warehouse club, nowadays, your options are virtually endless thanks to the gig economy. You can teach an instrument you know, walk dogs, drive for a rideshare company, or find an online gig, like writing or editing. Or, you can start your own business, whether it's a flower shop, cafe, or tutoring service.
You deserve to enter your senior years with confidence in your ability to live the life you want. If you're not feeling financially ready, take the above steps to improve your outlook -- and avoid the stress so many retirees unfortunately face.
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