With an average retirement balance of just $202,000, baby boomers can find themselves pinched on retirement income, according to a new survey from the Transamerica Center for Retirement Studies. Using the 4% retirement withdrawal rule, this balance would result in $8,080 in taxable annual withdrawals, or about $670 per month.
With an inflation rate of 8.5% at the end of July, that kind of money may not be stretching too far for retirees. But there’s an unexpected trick where just $6,000 can help retirees keep $150,000. Here’s how it works.
For more help planning your retirement and maintaining your nest, consider finding a trusted financial advisor.
Adding a part-time job of just 13 hours per week at the current federal minimum wage (with four weeks of vacation per year) would allow the retiree to bring in $125 per week, or $6,000 per year. If that doesn’t sound like much, calculate it and divide it by 4%. That’s right – an additional $6,000 annual income equals a 4% drawdown on $150,000 invested assets.
The upshot is that just a few hours of non-particularly high-paying work means a retiree with $202,000 investments can live like someone with a $352,000 portfolio — the equivalent of a 74% increase in their retirement egg.
This can be a huge relief for baby boomers making their retirement plans. The Transamerica survey found that 34% of baby boomers reported that their finances were hit during the pandemic, and 36% said building their emergency savings was their financial priority now. The report found that the average emergency fund among baby boomers was $10,000. Typically, financial experts recommend keeping at least three months of living expenses on hand, although a six to eight month cash cushion is better.
Baby-boomers total 71.6 million men and women born between 1946 and 1964. Older baby boomers reached their full retirement age in 2012, while the youngest workers in the group won’t reach the full retirement age of 67 until 2031.
Boomers also face concerns about health care risks and longevity risks. Fidelity’s latest retirement health care cost estimate for retirees finds that a retired couple of 65 years old today may need $315,000 — after taxes — to cover health care expenses only during a retirement period of about 20 years. Improved health care means retirees can expect to live longer, too, which adds more financial pressure to make sure they don’t exceed their retirement savings. The survey found that today’s workers expect to live an average of 88 years, but 9% of baby-boomers said they expect to reach 100.
The idea of working in retirement is already well established among boomers, with 47% of the survey saying they plan to work in retirement. Earning additional income is also likely to be a priority for the 34% of the post-war generation who report that they expect Social Security to be their primary source of retirement income.
With a tight labor market — unemployment was just 3.6% during July — retirees looking to land a job must find employers waiting with open arms. Employers are becoming more open to hiring older people than in the past, and an increasing number of large companies are creating “revenue” for older workers who want to move into a new field or type of job. No layoffs — where retirees decide to re-enter the workforce after a year — is a notable trend, with about 3.2% of retirees doing so in 2022, according to the job site Indeed.
Returning to the workforce, even part-time, can pay off hugely for retirees. Retirees are ill-equipped to sustain their nest for a long retirement, but adding a part-time job of just 13 hours a week at the current federal minimum wage (with four weeks of vacation a year) would earn them $6,000 a year. And that’s not something to sneeze at: an addition of $6,000 in annual income equals a 4% withdrawal of $150,000 in invested assets, which a retiree can protect and preserve.
Tips for retirees
A financial advisor can help you find creative ways to enjoy your retirement and perhaps even reduce the amount of money you withdraw from your nest egg each year. Finding a qualified financial advisor doesn’t have to be difficult. The free SmartAsset tool matches up to three financial advisors who serve your area, and you can interview your own advisors at no cost to determine which one is right for you. If you’re ready to find a counselor who can help you achieve your financial goals, get started now.
Use the free SmartAsset Retirement Calculator to get a good initial estimate of how much money you’ll need to retire.
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