How your employer can help boost your retirement

It should come as no surprise that millions of older workers are approaching their retirement years with modest savings, wondering if they'll have enough money to live comfortably in retirement. So it's smart to explore how your employer and its 401(k) plan might help you maximize your retirement income. 

You might also find help with your employer's other benefit programs. In fact, it turns out that your employer might have many ways to help make your retirement more secure.

For many middle-income workers, Social Security will provide the largest portion of their retirement income. As a result, you should optimize this valuable benefit, usually with a thoughtful strategy to delay the start of benefits. Many 401(k) plans offer professional advice or software tools that can help you find ways to max out your Social Security benefits, so be sure to check these out.

By the way, optimizing Social Security benefits is the first step of the "Spend Safely in Retirement Strategy," analyzed in a recent report from the Stanford Center on Longevity.

If you decide to retire before the best age at which you should start your Social Security benefits, you could use a portion of your 401(k) savings for a "retirement transition bucket" to replace the Social Security benefits that you're delaying. 

For example, suppose your Social Security income would have been $25,000 per year at age 66, but you decide to delay Social Security for four years, until age 70, to take advantage of Social Security's generous delayed retirement credits. To enable that delay, you could dedicate $100,000 from your retirement transition bucket (that's $25,000 for four years) and instruct your 401(k) plan to pay you $25,000 per year in monthly installments. 

You'd invest your retirement transition bucket in a fund that's protected from stock market crashes, such as a money market fund, short-term bond fund or stable value fund, which are commonly offered in 401(k) plans.

The second step of the Spend Safely in Retirement Strategy is to generate "retirement bonuses" that have the potential for growth but can go down if the stock market crashes. Use the IRS required minimum distribution (RMD) to calculate the amount of your retirement bonus each year. Most 401(k) administrators can calculate the RMD amount for you at the beginning of each calendar year, so you know in advance how much your bonus will be.

Many administrators will automatically pay the RMD in the frequency you elect (monthly, quarterly or annually). Investigate whether your 401(k) plan administrator can help you set up automatic payment of your retirement bonuses.

The best investments for your RMD retirement bonuses are low-cost stock index fund, a balanced fund or target-date funds. Research shows that such funds will most likely generate more retirement income compared to higher-priced mutual funds that actively manage investments. Many 401(k) plans offer these low-cost funds, so you may not need to look any further for efficient retirement investments.

For many older workers with modest savings, working longer can help boost their income for when they eventually retire. But if you're tired of the full-time grind, you might want to investigate whether your employer will allow you to "downshift" and work just enough to cover your living expenses while your Social Security and retirement savings grow. 

By working less, you free up some time to enjoy life more and take care of yourself. While most employers don't have formal phased retirement programs, many will allow valued workers to create some flexibility in their work schedules.

If you're retiring before age 65 -- the eligibility age for Medicare -- investigate whether you can bridge the health insurance gap until you attain age 65 with COBRA coverage under your employer's medical plan. COBRA monthly premiums might be lower than the medical premiums for insurance policies you might find shopping on your own. Your employer is required to offer COBRA coverage for up to 18 months following your termination date, and some companies offer longer continuation periods.

Some employers also offer group purchase long-term care insurance plans, which might have lower premiums and more favorable terms than long-term care insurance policies you'd buy on your own. If you're interested in protecting yourself against the threat of high long-term care costs, you might want to investigate whether your employer offers this option.

Finally, many employers offer wellness programs to help you improve your health, and financial wellness programs to help with your daily budgeting. These can be valuable programs that help you get your health and finances back on track.

If your employer doesn't offer some of these 401(k) plan features, programs and benefits, ask! Many of your co-workers might be in the same boat as you. If you all make the same request, enlightened employers often respond favorably.

Many older workers will need all the help they can get to live a healthy and financially secure retirement, and it's only smart to investigate how your employer can help.

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    Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. Now he's a research scholar for the Stanford Center on Longevity, where he helps collect, direct and disseminate research that will improve the financial security of seniors. He's also president of Rest-of-Life Communications, delivers retirement planning workshops and authored Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck and Recession-Proof Your Retirement Years.