When I read that the median retirement savings balance among Americans aged 65 to 74 was just $200,000 as of 2022 (the latest year for which this data is available from the Federal Reserve), I was disappointed but not particularly shocked. It’s not a secret that many people struggle with retirement savings.

The problem, though, is that approaching retirement with a mere $200,000 IRA or 401(k) — or less — could put you in a very precarious financial situation once your career wraps up. If you withdraw from an IRA or 401(k) plan of that size at a rate of 4% per year, which is what financial experts have long recommended, it gives you just $8,000 of annual income.

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When you add in the roughly $23,000 a year the average retired worker today gets from Social Security, that’s an annual paycheck of $31,000. For many people, that just won’t be enough, especially given the lingering impact of inflation.

If you’re approaching retirement with a small retirement plan balance, you may be inclined to keep plugging away at a full-time job for a few more years. And if you would’ve asked me a couple of years ago whether that makes sense, I’d have told you yes.

But I’m no longer convinced that delaying retirement is the best way to make up for a savings shortfall. Instead, I think there’s another approach worth exploring.

The problem with delaying retirement

There are a few issues with using a delayed retirement as a means of playing catch-up on the savings front. First, it assumes you’ll be able to continue working full-time.

Once you reach a certain age, it can be difficult to get hired for a full-time position. If you’re downsized out of a job at age 67, or if your company folds, you may not be able to get hired for a comparable position at another company. Even though it’s illegal to pass over a candidate due to their age, it’s also very hard to prove that something like that has happened.

Plus, you never know if health issues might make it impossible to continue holding down a full-time job. And even if your full-time job remains available to you later in life, continuing to put in full-time hours might wreak havoc on your health (physical and mental).

A better solution

Delaying retirement and working a few extra years could help you boost your IRA or 401(k) balance. But before you go that route, I recommend a different approach: Retire from your full-time job on schedule, but join the gig economy at the same time.

The nice thing about the gig economy is that you can set your own hours and limit your stress level by choosing work that’s not overly demanding. If, at a certain age, it’s a struggle to get up at 7:00 every morning to trek into work, you could find a gig opportunity that has you starting your workday at 10:00 or 11:00. And if you no longer able to sit at a desk and type all day due to back or wrist pain, you may be able to find a job that has you getting up, moving around, and engaging in tasks that are better for your physical health.

Plus, transitioning into a gig role still gives you a taste of retirement, only without the complete loss of income. You might still have to tap your savings to supplement your Social Security benefits, but those withdrawals might be minimal. And if your gig work proves to be more lucrative than expected, you might manage to leave your retirement plan alone or even add to it.

In theory, delaying retirement to make up for a small IRA or 401(k) is a good idea. In practice, it may not work. Or, it could work but bring about health-related consequences. So before you decide that that’s the best way to give your savings a needed boost, see if you can move forward with your retirement plans and embrace the gig economy at the same time.

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