No 4: Little Savings for Retirement

Christine and Stephen Toma have more-modest goals for their retirement stash. But they're thankful that their employer, Kuchera Industries, in Johnstown, Pa., has prompted them to make saving a high priority.

Ever since she went to work as a marketing representative for the circuit-board manufacturer two years ago, Christine contributed 4% of her annual salary to her 401(k) plan, enough to capture the company's matching contribution. Stephen, who recently joined the company as a photographer and videographer, signed up to contribute 5% of his salary.

Then the Tomas took advantage of the Principal Financial Group's Milestone advice program, which is offered free through their employer. The financial profile they received included individual projections of how much money they would have by age 65, based on their current contributions, plus suggestions on ways to boost their savings. "The numbers they showed us initially were scary," says Christine. "We would have been living in poverty if we had stuck with the amount we were contributing."

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Christine and Stephen each signed up to increase their salary deferral automatically by two percentage points a year. They also decided to roll over retirement accounts from their previous employers into their company plan and to invest all of their money in target-date retirement funds appropriate for their goals (see "Funds That Keep It Simple," on page 39). The Principal adviser showed them how they could shift more money into retirement savings once they pay off two car loans, which total about $600 a month.

Christine, 41, says she would like to retire from her current job at age 50 and try something new. And the Tomas have a handful of aces in the hole that could make that possible: an affordable cost of living in Johnstown, a mortgage that will be paid off in nine years, and Stephen's passion for his job, which he says he'd be happy to keep indefinitely.

Fortunately for the Tomas -- and anyone else looking to bolster retirement savings -- working just a few years longer can make a huge difference in retirement income. If you continue to work, you can contribute to your savings for a few more years, delay tapping your nest egg and reduce the number of years that your assets will have to generate income.

In addition, a few extra years on the job could mean continued access to employer-provided health-insurance benefits until you become eligible for Medicare at 65. And the longer you wait to collect Social Security benefits, the bigger your benefit will be (until age 70, when delayed-retirement credits end).

Delaying retirement does not necessarily mean delaying gratification, says Christine Fahlund, chief financial planner for T. Rowe Price. Even if you stopped saving for retirement and spent the extra dollars on travel or anything else that struck your fancy, you could still boost your nest egg, and consequently your retirement income, says Fahlund.

That's because every dollar you earn is a dollar that doesn't have to be withdrawn from retirement savings. In fact, a recent analysis by T. Rowe Price shows that someone who works an additional three years beyond 62, saves 25% of his gross income and delays collecting Social Security benefits until 65 would increase his total retirement income by 28% -- about the same amount as someone who worked four years longer with no additional savings and began collecting Social Security benefits at 66.

NEXT: FROZEN PENSION FUNDS

SEE ALL NEST-EGG WOES

No. 1: Late Start on Saving

No. 2: Lack of Focused Strategy

No. 3: Big Nest-Egg Losses

No. 4: Little Savings for Retirement

No. 5: Frozen Pension Funds

No. 6: Saving in a Bear Market

HOME: Catch Up on Your Retirement Savings