6 ways to improve retirement
Delaying Social Security is a big help.
The goal for many is quite simple: to live comfortably throughout retirement.
And 60% to 70% of Americans are on course to maintain their preretirement standard of living, according to a justpublished analysis from the Society of Actuaries’ (SOA) Retirement Section and Committee on Post Retirement Needs and Risks.
Those in good shape include workers who participated in employer-sponsored pensions and retirement plans over the course of a 30-year career. Also, married-couple household heads aged
55 to 64 — who had combined income of
$105,000 in 2014 and assets of
$250,000 not including their home — were among those prepared for a comfortable retirement, the report said.
People in the lowest-income groups could also maintain their preretirement standard of living, with Social Security replacing a substantial proportion of preretirement earned income. Based on Social Security Administration estimates, participants with career average earnings of roughly less than $21,000 are expected to receive benefits that will replace 59% to 81% of their preretirement income.
Those who could face the greatest retirement year challenges, according to the report, include the disabled, widowed, divorced and long-term unemployed. Yet people can take steps now to make their later years even more enjoyable.
Spend less
It’s an important life skill to learn how to manage money so there are some funds left over after paying off expenses, says Craig Copeland, author of a new Employee Benefits Research Institute report.
Scrutinize all big and small financial outlays, ranging from what is spent on meals out to what is paid for housing, advises Anna Rappaport, a pension consultant in Chicago and co-author of the SOA report.
Among the seemingly minor things to watch: spending on lunches out and afternoon lattes, says Vickie Bajtelsmit, co-author of the SOA report and a professor in Colorado State University’s Department of Finance and Real Estate.
Save more
There are also strategic ways to save, Bajtelsmit says. She suggests putting half an annual raise into savings, as well as moving windfalls such as a bonus into savings as well. “It’s easier to set aside funds that have never before been in your budget,” she says.
An early and important goal, Copeland says, is to build up emergency savings. An easy way to build that emergency fund is to have a set amount of money automatically moved from a checking account into a savings account each month, he says.
How much should you save beyond that emergency fund? “A commonly recommended number is 10% of income, but that assumes you start when you are young,” Bajtelsmit says. “Someone who begins saving in their 40s will need to save a much larger percentage.”
One way to evaluate how much to save by certain ages is to use a multiple of your salary as a benchmark. Fidelity Investments suggests having one time your salary saved for retirement by age 30, three times by age 40, six times by age 50 and 10 times by age 67.
Pay down debt
In U.S. families where the head of household is 75 or older, the level of debt has increased nearly 60% from 31.2% in 2007 to 49.8% in 2016, according to the Employee Benefit Research Institute.
The percentage of these families with debt payments that are excessive rela- tive to their incomes is near its highest levels since 1992, Copeland says.
The biggest contributor: housing debt, he says. Housing represents about one-third of all expenses for those age 65 and older, according to the Social Security Administration.
Copeland says the elderly and near elderly are placing themselves at risk of running short of money in retirement if they don’t tackle debt preretirement.
“If they are able to pay off of their mortgage, they will be rid of the largest debt source,” he says.
Delay Social Security
For most, age 62 is the earliest you can claim Social Security benefits. On exception: A widow or widower can start receiving Social Security survivor’s benefits at age 60.
Yet if possible, Rappaport says to postpone collecting Social Security until age 70 since the retirement benefits typically increase when delayed beyond full retirement age.
For instance, if you were born in 1957 and wait until age 70 to get your full retirement age benefits, you’ll get 128% of your FRA monthly benefit. The benefit increase no longer applies when you reach age 70, the Social Security Administration says.
Keep working
Delaying retirement by three to six months has the same effect on a retirement standard of living as saving an additional one-percentage point of earnings for 30 years, says a new study, The Power of Working Longer.
For primary earners age 62 through 69, the percent increase in retirement income from working one year longer and delaying the claim of Social Security can be big. A 62-year-old working one year longer could reap a 6.51% increase, while a 62-year-old working eight or more years longer could see an increase in retirement income of 75%, according to the Working Longer study.
Find meaning
“Retirement allows people the freedom to focus their attention on what matters most to them,” says Laura Carstensen, a professor at Stanford University. “An approach to life in which people do something every day that is meaningful and satisfying tends to make people happy.”
What can you do to make sure you have meaning during retirement?
“Each day, spend a few minutes thinking about the most important people in your life — then do something nice for one of them,” she says. “Or think about the causes you care most about — then take one action to contribute positively.”
“Retirement allows people the freedom to focus their attention on what matters most to them.”
Laura Carstensen Professor at Stanford University