Talk about a case of bad timing: the baby boomer generation started hitting retirement age during one of the worst economic disasters in modern-day history.
The oldest boomers started turning 65 in 2011, as the economy struggled to recover from the devastating market crash and recession that began with the financial crisis of 2008.
Middle-class Americans close to retirement (50-64) experienced a 22.4 percent drop in net worth during the Great Recession (2007-10), according to a study by the AARP Public Policy Institute.
The only cohort that saw a larger decline was the 25-49 age group (44.9 percent), but they also have more years to rebuild wealth before retirement.
For households close to retirement that have taken big hits, it’s a struggle to catch up.
If that description fits you, here are some solid block-and-tackle retirement strategies worth considering. None are easily achieved but they don’t require magic either.
Consider working longer
Not forever, just longer. Adding just a few years more can be a huge leverage point in boosting long-range retirement security.
It’s not an option for all older Americans – unemployment and health issues can intervene.
But working longer allows you to continue contributing to retirement savings, building additional balances that can be put to work in the market. And every additional year of income from work is a year in which you’re not drawing down retirement balances.
More years of work also create an opportunity to delay filing for Social Security.
More on that below, but research by T. Rowe Price has found that just three additional years of work beyond 66 can boost annual retirement income down the road from Social Security and investments by 50 percent or more.
Delay Social Security
Social Security is by far the largest retirement asset for all but the wealthiest Americans and the only source of guaranteed lifetime income with valuable annual inflation adjustments.
You can file as early as 62, and roughly 40 percent of us do just that, according to the Social Security Administration.
Benefits are adjusted up or down by about eight percent annually depending on where you take benefits in relation to what’s called the full retirement age – currently 66.
You get a credit for every year that you wait up to age 70.
Waiting isn’t right for everyone. If you’re in ill health and don’t expect to have a long retirement, or you’re in dire straits because of a job loss, filing early can be a sensible step.
But the numbers show that most people will do much better by waiting at least until their full retirement age.
That’s especially true for married couples.
The odds of one spouse enjoying better-than-average longevity are high, and Social Security benefits can be critical for surviving spouses at an advanced age, when other resources often are exhausted.
Working longer is one way to finance a delay, but research also shows that many retirees can come out ahead in the long run by delaying Social Security even if it means drawing down retirement savings to fund expenses for a while.
This can be an effective way to “buy” additional annuity income in the later years. And the increased annuity income lightens pressure on portfolios to such a great extent that portfolio life can be extended substantially.
One research team concluded that portfolios ranging from $200,000 to $700,000 enjoyed the greatest life extension, anywhere from two to 10 years longer.
The strategy works best for mass-affluent clients because Social Security represents a larger proportion of total net worth than it does for wealthier households.
Accelerate retirement account contributions
If you’re in a position to accelerate retirement account contributions, by all means, do so. If you’re still working, make sure to capture all of any matching contribution offered by your employer.
For IRAs, the tax-deductible annual limit is $6,000 for those under age 50 (2019), but you can make an additional $1,000 in “catch-up” contributions annually if you’re over age 50.
For 401(k) accounts, the annual contribution limit is $19,000 (2019); the catch-up limit is an additional $6,000 for those over age 50.
Adjust spending plans
Take a careful look at what you’ll really need to spend in retirement. The financial services industry’s off-the-rack advice is that people should aim to have enough savings to replace 80 percent of pre-retirement income.
But a growing body of research suggests that’s no more than a very general starting point, and that it most often is off target.
A recent Morningstar study found that the actual needed replacement rate varies from under 54 percent to over 87 percent. The research also shows that spending tends to fall as we get into more advanced ages, with the exception of health care costs.
So, take your best shot at forecasting what you think you’ll really need for non-discretionary expenses (shelter, food, health insurance out of pocket costs, utilities, transportation, clothing and the like).
Then give some careful thought to what you expect to spend on discretionary items.
If the numbers aren’t adding up, be prepared to make changes.
One obvious potential target for cutting expenses is housing. AARP Public Policy Institute reports that 29 percent of middle-class households over age 50 were spending more than 30 percent of their income on housing in 2009, up from 20 percent as recently as 2000.
The portion of households spending 50 percent or more of their income on housing nearly doubled during that period, to 9 percent.
Downsizing can reduce your monthly nut for mortgage, property tax and insurance payments, and it doesn’t necessarily require moving halfway across the country.
A growing number of retirees are finding that they can cut spending by moving to less expensive nearby locations.
A terrific resource on how to re-think retirement expenses is Retire for Less Than You Think, a book by Fred Brock, a retired columnist for The New York Times.