It's a refrain you hear more and more: Boomers are under-funded when it comes to retirement. The answer may be the "Spend Safely in Retirement" strategy, developed by researchers from Stanford University's Center on Longevity and the Society of Actuaries. According to a recent article in The New York Times, the strategy uses a person's retirement savings to "mimic a steady pension." It includes three steps in combination: Working longer, delaying payments from Social Security, and budgeting withdrawals from retirement savings accounts, such as IRAs or 401(k)s.
Many Boomers already realize they need to work longer, but depending on your anticipated Social Security monthly payment and the total amount available in your retirement savings account, you may be able to work part-time instead of full-time. Even a modest income can help you cover living expenses and offset the need to draw from Social Security too soon. You can draw Social Security benefits as early as age 62, but financial experts advise waiting until age 70, when you are eligible for the maximum amount. (Social Security benefits are based on your work earning history, so the actual benefit amount will vary for individuals.) The key thing to know is that, from age 62 through age 70, Social Security payments increase by 8 percent.
As for your retirement savings, you have likely been accumulating principal and interest in a tax-deferred vehicle. At age 70-1/2, according to current regulations, you must start taking a "Required Minimum Distribution" (RMD) each year, which will be subject to income tax, but presumably at a lower tax rate because your income is now less than during your peak earning years. The RMD is the minimum based on tax regulations, not based on what you might need to live on. That's where the juggling comes in. Steve Vernon, one of the Center on Longevity researchers who came up with the Spend Safely in Retirement strategy, tells The New York Times that a retiree might want to think of Social Security as a monthly "paycheck" that supplements any employment-related earnings, while the annual RMD can be viewed as a "bonus." Whatever way you think of it, it is important to establish a realistic budget you can comfortably live on and see how it matches up with the income you receive from the three sources -- work, Social Security, and retirement savings.
In terms of specific income, the Spend Safely in Retirement strategy will vary widely for every individual or couple, but the strategy is applicable to most people, as long as you can combine some employment income with Social Security income and payments from retirement savings. Sounds like a sensible way to approach retirement, doesn't it?