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As a rule of thumb, to maintain your standard of living after retirement, you should be able to recoup at least 70% of your working income.
However, many retirees do not reach their retirement income goals. research From Goldman Sachs Asset Management. The study surveyed 1,566 US participants between July and August 2022.
A study by the company found that only 25% of retirees generate that amount of income. Meanwhile, more than half (51%) of retirees are making ends meet on less than 50% of their pre-retirement income.
The gap is not surprising given that more than 40% of those still working say their retirement savings are behind schedule. Generation X members, sandwiched between millennials and baby boomers, were 50% or more most likely to be late in retirement.
Competing life goals and financial priorities – the so-called financial vortex — Can get in the way of savers balancing other roles as parents and caretakers, and as homeowners and renters.
“There are all these competing priorities that could crowd out retirement savings,” said Mike Moran, senior pension strategist at Goldman Sachs.
If you are still working, there are steps you can take to significantly increase your cash flow later in life and increase your chances of meeting the 70% replacement rate.
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1. Shrink your lifestyle
Reducing your living expenses now can reduce your retirement income. JP Morgan Asset Management retirement strategist Sharon Carson suggested asking yourself if your expenses are less than your income.
“If you haven’t done it yet, it’s a great place to start,” she said.
Ted Jenkin, CEO, Founder and Member of Oxygen Financial CNBC Financial Advisor Councilhe recommends a 21-day budget cleanse to help people cut spending.
Shop every bill in your home for 21 days to see if you can get a better deal.
2. Gradually increase your savings
Save even 1% of your salary for retirement, even if your budget is tight It can help a lot when you finally need to withdraw that money.
Generally, 15% of your salary should be wasted towards retirement, according to retirement experts at JP Morgan Asset Management. If there is a company match, it can be included.
You may not reach 15% immediately.
“Look what you can do every year,” Carson said. “If you can do something, there are long-term benefits of compounding interest.”
3. Find ways to save money outside of work planning
If you can’t access a 401(k) or other retirement savings plan through your employer, you’re not alone. 57 million Americans do not have access to retirement savings plans at work, according to the estimate.
Through a Roth IRA, you can contribute pre-tax or post-tax money to your personal retirement account. Some restrictions apply. For example, there are some limits on pre-tax contributions if: Spouse has workplace plansand the after-tax loss contribution depending on your income.
Many states are also taking steps Offer a retirement savings program For workers who do not have access to their employer’s plans.
4. Keep investing
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Moran said investments were the number one source of retirement income for retirees surveyed by Goldman Sachs. To get more income from your portfolio, you might want to consider dividend-paying stocks or municipal bonds.
The key is to keep investing and not let money move in and out of the market, Carson said.
Sure, loss hurts.But especially on the market’s worst days their best days are just around the corner.
“If you’re going to time the market, you have to get it right twice,” Carson said.
5. Delay applying for social security benefits
The longer you wait to claim your Social Security retirement benefits by age 70, the bigger your monthly check.
you might argue from age 62but your profit is reduced.
When you reach full retirement age (ages 66-67 depending on when you were born), you will receive all of your earned benefits.
You will receive an increase of up to 8% for each year you delay until age 70.
this is it’s still wise to waiteven at historic highs 8.7% cost of living adjustment This year, experts say.
COLA is your Primary insurance amount, a benefit paid to you at full retirement age. The longer you delay claiming, the higher your benefits will be and the greater the impact of the annual cost of living adjustment.
6. Consider your pension
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Because my pension was at a loss, a product called an annuity It has become a way to create a stream of income after retirement. You will have to sacrifice a lump sum up front in exchange for a steady stream of monthly checks after retirement.
A deferred annuity that provides income in the future can be helpful if you’re worried about running out of money later, says Moran.
Some immediate or variable annuities that may give you a check sooner offer attractive guarantees, Jenkin said.
These agreements are binding, so it helps to proceed with caution.
Make sure the fees and costs aren’t exorbitant, and don’t buy a product recommended by someone at a dinner seminar, says Jenkin.
“The best advice is to hire someone on an hourly basis to go buy the product for you,” he said. ”
7. Plan to work a little longer
The second most preferred source of income after retirement is part time joba Goldman Sachs study found.
It has many advantages. Even if you retire, your income will not disappear completely. Plus, according to Moran, interacting with co-workers can have social benefits.
Earning extra income can help you delay receiving Social Security benefits or draw less from your retirement portfolio, making your money last longer for years to come.