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Worried you might outlive your retirement savings? You’re not alone. That very real fear is called “longevity risk” by financial analysts, and it’s hardly the stuff of paranoia: Fully 49% of Americans say that they fear they’ll live longer than their retirement savings, according to SimplyWise. And not surprisingly, then, about half of people are planning to work in retirement, per TransAmerica.
There are two ways to ease your fears: Make the most of the dollars you have or figure out how to make more dollars. We’ll discuss both strategies, but one big takeaway is that the new remote work culture that has sprung up in response to the Covid-19 pandemic offers plenty of opportunities to generate more part-time income during your golden years.
Keep Working to Boost Your Retirement Income
The most obvious solution to anxiety about longevity risk and your retirement savings is to keep working. Every paycheck represents two weeks added to your retirement fund rather than taken away from it.
Plenty of Americans have come to this conclusion. According to a 2018 Gallup poll, working Americans say they expect to retire at age 66, up from 60 in 1995. That’s a pretty dramatic increase. It’s also not realistic. While Americans say they plan to work later into life, that’s not the plan corporate America, or even fate, has for them.
High-income 50- and 60-somethings are an easy target for cost-cutters, and it’s very hard to predict if, or when, you may be forced to quit working full time due to disability. The Employee Benefit Research Institute found that the actual median retirement age is 62, and about half or workers end up retiring sooner than they expected. So the plan to simply keep working, while admirable, isn’t realistic for a lot of people.
Maximize Social Security to Boost Your Retirement Income
The next-most-obvious solution to outliving your savings is to postpone Social Security as long as possible.
“I always tell people if you are worried about your income, especially if you are healthy, delay getting Social Security until age 70,” said Carolyn McClanahan, CFP, a medical doctor and retirement planning expert.
Eligible Americans can apply for Social Security benefits as young as 62 and as old as 70. Retirees generally stand to gain a whole lot—up to 8% a year in additional benefits—by postponing applying for Social Security benefits as long as possible. That said, individual circumstances can impact these calculations, so it’s best to consult an expert.
Make Tax-Efficient Retirement Savings Withdrawals
For Americans with a decent-sized retirement fund, there are complicated calculations to consider when it comes to withdrawals, and mistakes can be costly. McClanahan says many savers erroneously think they are best off leaving their tax-advantaged 401(k) or IRA savings untouched during early retirement and living off of taxable savings instead. That can be a big mistake.
“If you are in a 0% or 10% tax bracket, it’s crazy to do that,” she said. Once you start claiming Social Security and have required distributions from your retirement plans, you can very quickly end up in higher tax brackets, so Uncle Sam gets a bigger bit of the distributions going forward. Taking 401k or IRA distributions to fully utilize the 0% to 12% tax brackets once you hit age 60 will save significantly on taxes over the long haul.
“Some people say, ‘Oh, I didn’t owe any taxes, and I’ll say, ‘Oh, that’s sad, you lost all those deductions,”’ she said. Take advantage of those low-income years to move the money out of those tax-advantaged accounts, she advises. Again, many factors dictate the best way to spend down your taxable, tax-advantaged and tax-free savings, so it’s worth shelling out some cash to hire an expert. You don’t want to spend your money needlessly paying Uncle Sam during retirement.
Lower Your Spending to Increase Your Retirement Income
The 4% Rule is one guide to understanding how much of your retirement savings you can withdraw each year, but many financial planners see it more as financial folklore than a solid guideline.
Retirees can’t really control significant events that impact longevity risk, like property tax increases or serious health issues. But they can control how much they spend, and it might be wise to consider a radical lifestyle change that cuts spending to slow the loss of retirement savings.
Moving to a less expensive area with cheaper entertainment costs and lower property taxes can make a huge difference. So can downsizing a home and pocketing the difference. It’s normal to spend more during early retirement years on fun items like travel or a second home, but that’ll be a lot less fun if it increases longevity risk anxiety later.
Raise Your Retirement Income with Gig Work
Perhaps the best way to boost your retirement savings is to make more money. Every dollar earned and saved at age 65 could well be worth $4 by age 85. As we’ve said, working full-time may not be appetizing, or available, for many. Fortunately we live in a golden age of part-time work, started by the advent of the gig economy and accelerated dramatically by the pandemic.
“Over the last five or 10 years, we’ve seen the rise of part-time, freelance and temp project work that is at the more professional level. There is a lot more opportunity now than there used to be, and from last year, the rise of remote work will be sticking around for a long time to come,” said Brie Reynolds, senior career specialist at FlexJobs.com, a site devoted to “flexible hiring.”
Plenty of employers who would never have considered remote workers before the pandemic are all-in now that many of the kinks have been worked out. Gig work at home brings with it the twin blessings of flexible hours and no commuting costs. And while in the past, a lot of work-from-home jobs involved tedious data entry or customer service, the opportunities are quickly expanding.
“One area we find really appealing to clients is education and tutoring. A much wider variety of subjects are being tutored now,” Reynolds said. “From early childhood to adult continuing ed. There’s tech, math and science, and those command a higher pay rate, anything from $15 to $20 an hour at the lower end up to $30 to $35 an hour.” There are also far more part-time consulting gigs than ever before. Reynolds recommended interested workers search not just by job titles but also by the skills they have to maximize opportunities.
One word of caution: Just like in the real world, there’s ageism in remote work. Legal or not, it’s a reality that applicants must consider, Reynolds noted. In fact, since remote work depends so heavily on technology, it’s important that applicants include a skill section demonstrating familiarity with tools like Zoom and Google Drive, she said.
And there’s another big gotcha that late-in-life gig workers must consider: the potential for surprise tax bills.
“A lot of people do gig work but don’t understand the tax implications going into it,” McClanahan said. Gig workers usually have to pay self-employment tax and make estimated tax payments during the year, which can be a big booby trap for the uninitiated. Older gig workers can have additional tax worries. A small bump up in income can have a big impact on Medicare premiums, for example. For those with minimal income who wouldn’t otherwise owe federal taxes on Social Security payments, a small amount of gig work might kick them up into a taxable income bracket.
“You might work very hard, you’re making another $5,000, but you might keep only half of that” after taxes, McClanahan warned. Still, she said, those on-the-line situations are unusual. For most people, the work is worth it, she said.
“Don’t be afraid of the taxes. Just make sure you understand them,” she said. “Whenever you have a situation when you are going to work and make income like that, maybe run it by an accountant.”
Curious about part-time work but don’t know where to start? AARP has a list of best part time jobs for retirees.