Countless seniors struggle financially in retirement. If you're looking for a few surefire ways to increase your retirement income, here are four moves you can make.
1. Hold off on Social Security
Once you reach your full retirement age for Social Security purposes, you'll be eligible to claim your benefits in full. Your full retirement age is based on your year of birth, as follows:
DATA SOURCE: SOCIAL SECURITY ADMINISTRATION.
That said, you don't have to claim your Social Security benefits upon reaching full retirement age, and if you hold off on filing, you'll accrue delayed retirement credits that can increase your benefits by 8% each year. Though this incentive runs out at age 70, if your full retirement age is 66 and you wait four years, you'll boost your benefits by 32%.
But waiting on Social Security serves another important purpose as well -- increasing your base benefit amount. See, your actual payments are determined by how much you earn during your working years. Most people make more money at the end of their careers than at the beginning, so if you work longer and replace some of your early lower income years with years of higher earnings, you'll raise your base benefit amount in addition to snagging that 8% boost.
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2. Load up on income-producing investments
Most retirees are advised to have a decent mix of stocks and bonds in their portfolios, and if you choose the right investments, you could set yourself up for a lifetime of income. Remember, when you invest in bonds, you can make money in one of two ways -- selling them for a price that's higher than what you paid or holding them and collecting regular interest payments. The same applies to stocks that pay dividends -- you can sell them at a gain and use your sale proceeds as income or keep them in your portfolio to keep cashing in on those dividend checks. If you opt for the latter approach, both stocks and bonds are a good way to create a steady, reasonably reliable income stream in retirement.
Now regular bond interest and dividend payments are subject to taxes, but there is a way to secure tax-free investment income, and it's by purchasing municipal bonds. Unlike bonds issued by corporations, municipal bonds are those issued by states, cities, and localities, and the good thing about them is that their interest payments are always tax exempt at the federal level. Better yet, if you buy municipal bonds issued by your home state, you'll collect your interest payments free and clear of state and local taxes as well.
3. Open a Roth IRA
Many seniors rely on their IRAs for retirement income, but if you open a Roth IRA over a traditional one, your account balance will go further in retirement. That's because traditional IRA withdrawals are taxable in retirement, while Roth withdrawals are taken tax-free.
Say you have a $200,000 IRA balance at the start of retirement and wish to withdraw $10,000 per year. With a traditional IRA, you'll lose a portion of that $10,000 to taxes, but with a Roth account, you'll get to use that $10,000 in full. Plus, unlike traditional IRAs, Roth accounts don't come with required minimum distributions, which means you can leave your money alone to grow if you don't need to access it right away. And the more you have in your account, the more additional earnings your savings can generate.
4. Work in some capacity
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If you're looking for a guaranteed way to generate more income in retirement, working, whether in the form of a part-time job or starting your own business venture, is a good way to do it. But working can help you financially outside of that added paycheck. Many retirees spend lots of money on leisure because they need something to do with their newfound free time. If you occupy some of your waking hours by working, you'll spend less on entertainment, thus freeing up more cash in your budget. Furthermore, working even part-time in retirement can serve as an essential social outlet, which can help you stave off depression and other health conditions that can be costly to treat.
Finally, remember that the more money you save during your working years, the more income you'll have available in retirement. Increasing your IRA or 401(k) contributions year over year could help you avoid a cash-strapped existence down the line.
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