If saving for retirement were easier, more people would undoubtedly do it. But for those on limited incomes, it can be difficult.
Even as you earn more, you may find that your bills monopolize too much of your income to make any decent progress in building a nest. And so you may be in the position, like many, where you are approaching retirement with little money saved in a… IRA or 401(k) plan.
If that’s your situation, don’t panic. It doesn’t necessarily mean that your retirement is doomed to fail.
For starters, you may have the option to work part-time after retirement, whether you’re taking on a new job or advising in your former field, and that can be a nice income boost. You can also choose to reduce your living space or rent out part of your home for income.
But those aren’t your only choices. If you claim Social Security strategically, you can make up for missing savings – and earn yourself a higher monthly income for the rest of your life.
A higher benefit can be yours with one simple move
You are entitled to your full social security benefit based on your salary history as soon as you: full retirement age, or FRA. FRA depends on your year of birth and is 66, 67 or somewhere in between.
But you are not forced to sign up for Social Security upon reaching FRA. In fact, for every year you wait to submit, until age 70, you will be rewarded with an 8% increase on your benefits. And that boost will remain in effect for the rest of your life.
Let’s say you’re looking at a monthly benefit of $1,800 at an FRA of 67 based on your earnings history. If you work an additional three years and delay your claim until you are 70, you increase your benefit to $2,232. And that extra $432 a month can easily make up for a lower IRA or 401(k) balance.
Do your best to save
While delaying your Social Security application until age 70 can help offset a lower savings balance than you’d like, you shouldn’t. plan to neglect your nest egg and delay your submission. Instead, you should do your best to put money aside for retirement and limit your spending to make that happen.
That might mean starting by contributing $50 or $75 a month to your retirement plan and doing your best to increase your savings rate over time. Or it could mean putting bonus money you receive into your savings, be it a cash reward from your job or a tax refund, if you come across a period when you can’t afford to miss any money from your paycheck.
But if you’re nearing retirement and it’s too late to go back in time and pump money into your IRA or 401(k), deferring your Social Security claim is a good fallback option. By boosting that income stream for life, you can prepare for fewer worries with limited savings.