"Every day the increasing weight of years admonishes me more and more, that the shade of retirement is as necessary to me as it will be welcome." -- George Washington, Farewell Address
If you've spent any time pondering how much money you'll need in retirement, you may be thinking that you would do well to increase your retirement income, for maximum financial security. It can be vexing, though, to figure out just how you might do that. Fortunately, there are a bunch of ways to improve your fiscal future.
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Here are 10 ways you might boost your retirement income:
Strategy No. 1: Retire later
This may not be an appealing suggestion, but it's a powerful one. If you can work two or three more years than you originally planned to, your nest egg can grow while you put off starting to tap it. You might enjoy your employer-sponsored health insurance for a few more years, too, perhaps also while collecting a few more years' worth of matching funds in your 401(k).
The following table shows what a difference an extra year or two can make in your investing -- if you're socking away $10,000 annually and it's growing by an annual average of 8%:
Strategy No. 2: Work in retirement
Instead of working longer (or in addition to that), you might also ease into retirement by working a little in your first few years of retirement. Working just 12 hours per week at $10 per hour will generate about $500 per month. Better still, a part-time job can also give your days more structure and regular opportunities for socializing. Many retirees find themselves restless and a bit lonely in retirement, and a low-stress job on the side can be quite helpful.
Be aware, though, that if you're planning to start collecting Social Security benefits before your full retirement age (which is 66 or 67 for most of us) and you want to work some then, too, your benefits may be reduced. As the Social Security Administration explains: "If you're younger than full retirement age during all of 2017, we must deduct $1 from your benefits for each $2 you earn above $16,920." The year you reach your full retirement age, the earning limit jumps to $44,880, and the penalty decreases to $1 withheld for every $3 earned above the limit. Fortunately, though, the money withheld isn't lost. Instead, it's factored into the benefit checks you receive later, which end up increased.
Strategy No. 3: Pay off debts
Another way to have more income in retirement is to retire all your debts before you retire. When you're living on a reduced income it will be extra hard to pay off credit card debt or other high-interest debt, and those payments can hurt your ability to make other necessary payments.
Strategy No. 4: Collect interest
Many retirees in the past have lived off interest, to some degree. That's been harder to do in recent years, with interest rates near historic lows, but they've been rising a little and may be on their way up further. Right now if you park $100,000 in certificates of deposit paying 2% in interest, you'll collect $2,000 per year, hardly a helpful sum. Back in 1984, though, rates for five-year, one-year, and six-month CDs were in the double digits. If you could get 10% on a $100,000 investment, you'd enjoy $10,000 per year, equivalent to about $830 per month. Low interest rates not only deliver little income, but they also don't keep up with inflation.
Bonds are another interest-paying option, but the safest ones (from the U.S. government) tend to pay modest interest rates, especially in low-interest rate environments. Still, if you have a lot of money, you might make this strategy work by buying a variety of bonds that will mature at different times, generating income over many years.
Strategy No. 5: Maximize retirement savings accounts
The more you contribute to tax-advantaged retirement savings accounts such as IRAs and 401(k)s, the more money you'll have in retirement. There are two main kinds of IRA -- the Roth IRA and the traditional IRA and for both in 2017, the contribution limit is $5,500 for most people and $6,500 for those 50 and older. (Limits are occasionally increased, to keep up with inflation.) That might not seem like a lot of money, but it's quite powerful if it can grow for many years. The table below shows how much money you can accumulate with annual $5,500 contributions at different average annual rates of growth:
A 401(k) has more generous contribution limits -- for 2017 it's $18,000 for most people and $24,000 for those 50 or older. Give particular consideration to Roth IRAs and Roth 401(k)s (which are increasingly available), as they let you withdraw money in retirement tax-free!
Strategy No. 6: Buy fixed annuities
While some annuities, such as variable annuities and indexed annuities, can be quite problematic, often charging steep fees and sporting restrictive terms, fixed annuities are well worth considering. They're much simpler instruments and they can start paying you immediately or on a deferred basis. Following are examples of the kind of income that various people might be able to secure in the form of an immediate fixed annuity in the current economic environment. (You'll generally be offered higher payments in times of higher prevailing interest rates.)
Annuities deliver peace of mind, too, removing stock market moves and the economy's current condition from your worries. A deferred annuity can also be smart, starting to pay you at a future point, such as when you turn a certain age. A 60-year-old man, for example, might spend $100,000 for an annuity that will start paying him $952 per month for the rest of his life beginning at age 70. That can remove any worries about running out of money late in life.
Strategy No. 7: Collect dividend income
You can generate income in retirement by selling off shares of stock from your stock portfolio over time -- but with dividend-paying stocks, you can collect income without having to sell any shares! A $300,000 portfolio, for example, that sports an overall average yield of 4% will generate about $12,000 per year -- a solid $1,000 per month. Dividend income isn't guaranteed, but if you spread your money across a bunch of healthy and growing companies, you'll likely receive regular -- and growing -- payments. Here are a few well-regarded stocks with significant dividend yields:
A dividend-focused exchange-traded fund (ETF) can serve you well, too, offering instant diversification. The iShares Select Dividend ETF (DVY), for example, recently yielded about 3.1%. Preferred stock is another way to go. The iShares U.S. Preferred Stock ETF (PFF) recently yielded 5.3%.
Strategy No. 8: Borrow against your life insurance
Many people never think about this option, but you might increase your income in retirement by borrowing against your life insurance. This can work if you've bought "permanent" insurance such as whole life or universal life, and not term life insurance, that generally only lasts as long as you're paying for it. You'll be reducing or wiping out the value of the policy with your withdrawal(s), but if no one really needs the ultimate payout, it can make sense. Plus, the income is typically tax-free.
Strategy No. 9: Consider a reverse mortgage
Another possibility is getting a reverse mortgage, which essentially is a loan secured by your home. A lender will provide (often tax-free) income during your retirement, and the loan doesn't have to be paid back until you no longer live in your home -- such as when you move into a nursing home or die. It has some drawbacks, though, such as requiring your heirs to sell your home unless they can afford to pay off the loan. Still, if you need additional income in retirement and no one is counting on inheriting your home, it can be a solid solution.
Strategy No. 10: Maximize Social Security
Finally, you can boost your retirement income by being savvy about Social Security strategies and using one or more to boost your Social Security income, as well. You can increase or decrease your benefits by starting to collect Social Security earlier or later than your "full" retirement age, which is 66 or 67 for most of us, and if you're married, you can maximize your benefits by coordinating with your spouse when you each start collecting. If you and your spouse have very different earnings records, for example, you might start collecting the benefits of the spouse with the lower lifetime earnings record on time or early, while delaying starting to collect the benefits of the higher-earning spouse. That way, you both get to enjoy some income earlier, and when the higher earner hits 70, you can collect their extra-large checks. Also, should that higher-earning spouse die first, the spouse with the smaller earnings history can collect those bigger benefit checks.
There are probably more ways to increase your retirement income than you imagined. Think about which ones might work for you, and see how much better off you can be financially in the future.
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