Each year, countless workers enter retirement with inadequate savings and wind up cash-strapped later in life. It therefore pays to be strategic about drumming up more cash to fund your golden years. With that in mind, here are some steps you can take both during your career and your post-work life to squeeze out that extra money.
1. Hold off on filing for Social Security
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Once you reach full retirement age, which, depending on your year of birth, is either 66, 67, or 66 and a number of months, you'll be eligible to collect the full monthly Social Security benefit you're entitled to based on your earnings history. But if you hold off on Social Security past full retirement age, you'll snag an 8% boost for each year you delay, up until age 70. This means that if you're looking at a monthly benefit of $1,500 at a full retirement age of 67, waiting until 70 will give you a monthly payout of $1,860 instead -- for life.
2. Save in a Roth IRA
Though saving in any type of IRA is a good way to give yourself access to cash in the future, an even better move is to open a Roth IRA. With a traditional IRA, your withdrawals in retirement will be taxed as ordinary income, whereas your ending Roth IRA balance is yours to use free and clear of taxes. Furthermore, while traditional IRAs force you to take minimum distributions once you reach 70 1/2 or face steep penalties, Roth IRAs don't have this same requirement. This means that your money can sit and grow tax-free for longer, thus boosting the total amount you accumulate.
3. Be smart about taxes
If you hold investments in a non-tax-advantaged plan (like a 401(k) or IRA) during retirement, you should know that their associated gains will generally be subject to taxes. You can minimize that burden, however, and keep more money for yourself, by following a few key rules. First, always aim to hold investments for at least a year and a day before selling them at a profit; this way, you'll lower your capital gains taxes. In addition, consider loading up on municipal bonds, whose interest is always exempt from federal taxes. And if you buy bonds issued by your home state, you can avoid state and local taxes as well.
On top of this, you might consider moving to a state with more favorable tax treatment. Several U.S. states charge no income tax, and the majority of states don't tax Social Security benefits. Of course, there are other factors, such as home prices, sales tax, and real estate taxes, that contribute to a locality's relative affordability, but if you make taxes a key consideration when narrowing down a place to retire, you can free up more money that way.
4. Downsize your home
Most seniors manage to enter retirement without any mortgage debt, which means that's one less expense to eat away at their income. But if you're holding on to a larger home as a senior, downsizing can be a good way to put more money back in your pocket.
First, the obvious: If you sell your home at a profit, you'll get more money by virtue of that gain alone. But moving to a smaller space can save you money in other ways. For one thing, smaller homes are usually less costly to maintain, so if you're currently spending, say, $600 a month in upkeep, cutting your living space in half might put that sum at just $300.
You might also lower your property taxes by choosing a smaller space, and that's especially important these days, now that the state and local tax (SALT) deduction has been capped at $10,000 annually. It used to be that you could deduct your state and local taxes, including property taxes, at any amount, which meant that if you had a larger home with high taxes, you'd save money when filing your return. Now that homes with higher real estate taxes don't give owners that same full benefit, it makes less sense to hold on to a larger or pricier property, especially when downsizing will work to free up so much cash.
That said, if you're hesitant to unload your current home -- say, it offers certain amenities or you're just plain attached -- you can instead monetize it. Rent out a finished basement or garage, and take in monthly income that way. Or, rent your home seasonally if you don't want a full-time tenant and live close to attractions -- the choice is yours.
There's really no such thing as having too much money in retirement, so if you're looking to secure some extra cash, follow the steps above. With any luck, it'll buy you some luxuries at a time in life when you deserve them the most.
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