7 Strategies for More Income in Retirement
Chances are that if you are reading this article you’re either in or approaching retirement. Moreover, you are probably wondering if you can somehow increase the amount of income you’ll have available each month as you navigate your golden years.
We examine a number of income strategies for retirement that can do just that in this article.
Part of the human experience is dealing with an assortment of issues each day – some expected and others that seem to arise completely out of the blue.
Such is life.
Although it would be better for each of us to be prepared through proactive planning and actions, the reality is that doesn’t always happen. In fact, we all spend a fair amount of time and effort reacting to issues and situations as they occur.
Saving for retirement is absolutely one such issue.
Let’s face it, you’ve been warned to start saving right away. – as soon as you stated working those many years ago.
In no way can the issue of saving for retirement have sneaked up on you. That’s not a judgement – simply an acknowledgment of the fact we live busy lives.
Work and family and all the accompanying issues can consume our waking hours. And then suddenly 30 or 40 years have passed and you find yourself faced with a very harsh reality – you’ve got what you have saved and that is all you will have available in order to survive during your retirement years.
For many that is a harsh realization to have to come to grips with.
Fortunately, there are strategies that can help create or increase the income available during your advanced years that can make a major difference in how your retirement plays out.
You’ve no doubt heard of the 4-percent rule at some point. You can spend 4-percent of your portfolio value each year in order to make your assets last for the duration of your retirement.
Truth is that is a rule-of-thumb assumption you have to be careful with. Your situation is unique and will likely change over the course of your retirement.
When we retire we tend to spend more transitioning and doing some things we’ve wanted to do for years…splurge a little. So you might need a little more to do those things and 4-percent in a given year won’t be enough.
The next group of years might be the opposite and we don’t have any (or relatively few) surprises, so suddenly you don’t need as much money and you can save more of your nest egg.
And then we reach those years where life really slows down and we don’t spend much above our necessities, but we have to be careful in this period as our healthcare costs can really spike.
This cycle is defined by author Michael Stein, “The Prosperous Retirement,” who divides retirement into three decades: the GO-GO years, SLOW-GO years, and the NO-GO years.
The point is that life, and retirement along with it, is not static – it changes. And so does your needs.
Starting with a plan of taking 4-percent in systematic withdrawals isn’t a bad idea, but treat it as that – part of plan.
You’ll want to have a dynamic spending plan that anticipates and adjusts accordingly, so each year you will likely withdrawal greater or lesser amounts to meet your needs versus withdrawing the same amount regardless. You’ll also need to account and adjust for inflation each year.
Beyond focusing on what you might need to spend, you want to be strategic in terms of which assets to spend down in the process. Doing so haphazardly can cost you severely, especially when it comes to taxes.
A dynamic spending plan that draws from different types of your assets and accounts in the most efficient manner possible (heavy emphasis on taxes and tax planning) is actually one of the best income strategies you can utilize.
No, this isn’t about climbing Mount Everest, playing a round at Augusta National, fishing for salmon in Alaska, or any of those other dreams you’ve placed on a bucket list of the things you wish to experience before you leave this earth.
Buckets in this sense refer to an approach where you place different types of assets, ranging from cash and equivalents to fixed income instruments (e.g. bonds and CDs), equities, mutual funds, ETFs, REITS, property, and more, into various groupings or accounts. .
This strategy segments assets over different time periods, based on your needs, risk profile (comfort level with risk), anticipated spending and other factors.
The first bucket is intended for emergencies and near-term spending needs. As such you need cash or other highly liquid assets you can turn to cash quickly. This should be money you might need over the near one to several years.
The second bucket is for needs you might have in the next three to 10 years after retiring. The assets allocated in this bucket need to be diversified and relatively lower risk, with the ability to generate income, such as investment grade bonds, CDs, dividend stocks, lower-risk income producing mutual funds, etc.
The third basket is longer-term, say 10 years out and beyond, where you have time to let your assets grow. Growth equities and mutuals funds come with higher risk, but can produce higher returns. And you have some time on your side in the event of market declines.
Aside from equities and mutual funds or similar instruments, certain annuities can be a good fit in bucket 2 or 3, as they work best in longer-term strategies and offer living, death and spousal benefits, amongst others.
A common annuity strategy involves the use of a fixed index annuity (FIA) that is pegged to a particular equity index, such as the S&P 500 index.
Such an annuity can provide upside growth potential on a yearly basis that is tied to the performance of the index, but it won’t decrease even if the equity market loses value.
This is because you are not actually invested in the market and exposed to declines, so your account value won’t decline. While your gains may be subject to caps or participation rates, you ultimately receive upside potential without the stock market risk. And FIAs often come with a lifetime rider to provide lifetime income that is backed by the insurance company.
Delay retirement for you or spouse by a year or more
When you are approaching retirement, be it based on a desire to get out and enjoy life, too many years of service, health issues, burned out, or any other of the myriad reasons, contemplating actually holding off and delaying your retirement might seem like the worst idea possible.
You’ve put in your hard work and years of disciplined saving and investing, so it’s understandable that working longer before retiring might be the last piece of advice you want to hear.
Despite that being the case, it might make sense to at least contemplate taking such action. If you haven’t been able to save as much as you liked to this point, even a year to several years can help.
First and perhaps most importantly, you delay starting to spend your retirement assets, which makes them last longer. And you can invest more during that time, as you still have your salary. Additionally, you give your retirement assets that much more time to perform and grow.
Aside from that, you probably have insurance benefits from your employer, which is big given the costs of healthcare. When you retire there’s a decent chance you will be covering your healthcare expenses, which will be costly. Having your healthcare costs covered by your employer for an additional 1, 2, 3 or more years can add up, and again that money can go into your retirement.
Combined, these benefits can add up considerably to increase your income in retirement.
Take on a job in retirement
So, you’ve already retired and after a couple years you’re worried and feeling a budget pinch.
Or you’re bored and daily golf, pickleball, watching tv or other activities are getting boring. Or worse, while you like doing them, they are proving costlier than you anticipated or budgeted for.
Then it might be time to consider doing the unthinkable – going back to work.
That’s right, taking on a job in retirement. That probably wasn’t part of the golden dream you envisioned during all the years of hard work…doing more work. Sheesh, that pretty much sucks, huh?
Well, if you believe you are alone in this boat, think again. According to a February 2023 CNBC article, “1 in 6 retirees are mulling a return to work. What to consider before ‘unretiring,’” you definitely aren’t alone.
In fact, many actually find themselves wanting to do so. The article claims that the average person considering unretiring has been retired for four years and are doing so because of personal reasons, or because they need more money, out of boredom or loneliness , or because inflation is killing their spending power.
The benefits of doing so can include providing renewed purpose, introducing you to new friends and social engagements, and helping financially to a greater extent than you might expect. That income can pay for expenses, including for some of the things you retired to be able to do.
Even better, that money earned enables you to continue saving a portion of your retirement assets longer versus spending them down now.
Start a business
Sensing a theme here?
Honestly, not looking to arm twist and get you to keep working in retirement, but it is something a fair share of peeps contemplate for any number of reasons.
One for certain is the fact that we are living longer and more actively in retirement, which brings to fore all kinds of issues.
In the case of starting a business, it can be as straightforward as starting a consulting practice related to your previous line of work and expertise.
You probably have plenty of contacts and connections that can make this easier. You might even be able to consult to your past employer.
On the other hand, you can start something you’ve thought about in the past involving a favorite pastime, hobby, or passion. It may be something you hope to turn into a serious business with big-time upside potential, or instead work you know you will enjoy and hopefully make modest money doing.
Whatever the case, the time spent planning, building and executing can be rewarding in itself, and as previously mentioned, provide purpose, open you to new relationships and activities, and can help stave off boredom in retirement.
Maximize your social security
No doubt you know what Social Security is, but many actually don’t know much about how it works, when they can start to take advantage of the benefit, and the pitfalls of starting to withdraw too soon.
The amount you will receive is actually calculated in advance. It’s based on your highest 35 years of earnings. You can actually contact the Social Security Administration (SSA) and find out what your monthly payment will be in the future.
Beyond what you’ve earned, the other primary factor influencing what you will receive is at what age you decide to start receiving benefit payments, according to the IRS.
Outside of disability exceptions, you can start to receive payments in the year you turn 62, but your payments will be discounted by approximately 30-percent from what they would be were you to wait until you turn age 66 or 67, and will remain lower for the rest of your life.
If instead you wait until you reach the Full Retirement Age (FRA), you’ll receive your full retirement payment each month for the remainder of your life. For those born in 1965 and later, FRA is 66 years and two months. For those born in 1960 and thereafter, FRA is 67.
If instead you wait till you turn 70, your benefit will actually increase by 32-percent above your FRA monthly payment amount for the remainder of your life. For sake of perspective, that’s approximately 72-percent higher than the amount you would receive by starting payments at age 62.
Waiting can be a good strategy if you can do so, which can depend on many issues, including health, financial condition, and more.
Doing so can substantially increase your monthly payments, especially if you wait to start until age 70. Over a 10, 20 or even longer period of years, that increased rate can grow to a substantial amount of income for use in your retirement.
Once last point – you can receive Social Security payments while you are still working.
Have a tax plan
Paying taxes at any stage in life is not something the typical person likes to do. Duh!
When it comes to successfully investing, especially for retirement, the base premise is maximizing your return while incurring the least amount of risk and paying the minimal amount of taxes possible.
There’s a good chance that much of what you might have saved for your retirement up till now was in the form of pre-taxed dollars invested on a tax-deferred basis into IRAs, 401(k)s and other individual or employer-sponsored qualified retirement accounts.
Well, when you get into retirement it can’t be shocking to learn that at some point the tax man will come and take their pound of flesh. When you take out distributions from any of your retirement accounts to pay your bills or for any other reason, you will have to pay taxes.
Even if you don’t need the money to live on, at age 73 you will have to start doing so due to IRS required minimum distribution (RMD) rules. Surprise, surprise. You will pay taxes on your RMDs.
And beyond taking distributions, there are myriad other issues involving taxes in retirement. If not planned for correctly, taxes can cost you and your family tens to even hundreds of thousands during retirement.
Having a tax plan in place created by a qualified tax advisor (financial planner and/or a tax lawyer) that knows you, your goals and your situation can make a significant difference and help ensure you minimize your tax bill in retirement, which effectively leaves you with more of your money during your golden years.
As you’ve hopefully come to realize in reading this article, there are in fact many actions you can take to help increase and extend the savings you have currently and as you move through the course of your retirement.
Some may be things you’ve thought of and others will probably be approaches you haven’t contemplated.
Fact is retirement is complicated. There are many issues and pitfalls that can trip up anyone who hasn’t made it their life’s work dealing with the complicated aspects presented during this phase of life.
Oak Harvest can work with you to address these complicated issues.
We’ll build a holistic, comprehensive retirement plan addressing your income in retirement, as well as all other relevant issues, utilizing strategies that cover taxes, income, spending, healthcare, legacy, and more, customized to your family’s specific needs.
A plan created with the goal of ensuring you have the best opportunity of living out the retirement you and your spouse envision.
Let Us Help You Achieve the Retirement You Deserve!
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