Work longer to bolster nest egg

If you've started your countdown to retirement and discovered that your savings will fall short of your goal, here's good news: Time is on your side.

The most important thing you can do to bolster your nest egg as you near the homestretch is work a little longer. That advice may seem disappointing, but it doesn't have to be a downer.

"Instead of delaying gratification, keep the gratification coming and just delay the retirement," says Christine Fahlund, senior financial planner for T. Rowe Price.

For example, rather than waiting for retirement to splurge on a long-awaited cruise, do it now. After a change of scenery, you might even find that, when you come back to work, your job's not so bad after all.

Nice thought. But how do you pay for the trip? Fahlund suggests that you scale back your retirement savings during your final years on the job — contributing just enough to get the employer match — and use the extra take-home pay to treat yourself.

That may sound like heresy, but Fahlund explains that those last few years of 401(k) contributions don't have a huge impact on your bottom line because there's little time for them to compound before you start tapping your savings for income. The big-ticket impact comes from delaying the day when you start taking withdrawals, which reduces the total number of years you'll have to make your savings last.

Working longer not only provides an extra year or two of income and employer-provided benefits, it also reduces how much you need to save. Assuming you withdraw 4 percent of your nest egg in the first year of retirement — a standard rule of thumb — earning $20,000 a year at a part-time job is like having an extra $500,000 in retirement savings.

"Working a little longer is a lot less painful than saying you have to save half of everything you earn in order to catch up," says Fahlund.

If you decide to work longer, you'll have lots of company. More than three-fourths of baby boomers say they expect to work, at least part-time, during retirement, according to AARP. Now that the oldest boomers are 61, the trend is already apparent. Ten years ago, the typical U.S. worker retired at 60. Recently, the typical retirement age has risen to 62. Researchers at the Employee Benefit Research Institute speculate that the shift may be tied partly to the demise of traditional pensions and an increasing reliance on self-funded 401(k) plans.