Some of us are blessed with the right combination of foresight, circumstances, and high-paying careers so that we never have to worry about our income in retirement. But for the rest of us — 88%, to be exact — it’s a real concern, at least according to a recent survey by investment advisory firm Schroders.
It’s not an unfounded fear, either. As you age, your ability to earn income from work decreases while your health care costs increase.
Couple that with a confusing network of tax laws and financial regulations, and planning for it Retirement It often feels like trying to put together a puzzle in the dark. And in a sense, you are, because even the best financial planner can’t plan Absolutely What will happen in the future?
Despite these challenges, there are several strategies you can use to increase your income in retirement — even if you’ve already entered that stage of life. Here’s what to do:
1. Create a financial plan
You wouldn’t start driving to your destination on a road trip without first looking at a map. But that’s the way many Americans approach retirement: More than half of retirees don’t have a plan for their post-retirement income, according to a Schroders survey.
Creating a financial plan—which is essentially a road map that can help you reach your goals—is complicated, especially when it comes to planning for all the unknowns that may arise in retirement. can be Because of this Hiring a financial planner Might be worth the cost.
“I would advise people to work with advisors who are transparent, very clear and will explain exactly how much they’re paying and what they’re actually paying for,” says Kevin Lam, a certified financial advisor. says the planner and retirement expert. Finance age wisely.
Many people confuse investment services with financial services. Your investments are only part of a bigger picture, says Lam. And because many advisors charge based on how much you invest with them (a model called “assets under management”), it can be hard to see how much you’re actually paying. . He suggests finding out how your advisor is paid and whether that might affect the advice they give you.
Also recommends reaching out to Lam Foundation for Financial Planning To connect with a consultant offering complete planning services. And if you’re worried about affording the advice, know that many of these planners provide services on a pro-bono basis for certain populations.
2. Delay when you file for Social Security
If you’re still working full-time, you’ll have more flexibility in your income in retirement when you start thinking about it.
“Decisions you make in your 50s and 60s will affect your flexibility in your 70s and 80s,” said Mark Van Drunen, a senior managing director at MAI Capital Management. Case in point: When you first file for Social Security.
“We’ve seen people say, ‘I just wanted the money,’ and they’ll sign up at age 62 or 63 because they want a paycheck,” Van Drunen says. You may get paid quickly, but it comes at a huge cost. Older adults who file for Social Security before age 70 will receive permanently smaller payments. Depending on how early you start filing, your payments can be reduced by up to 30%.
By delaying when you file, you’ll ensure the highest Social Security income for the rest of your life.
3. Consider alternatives to working longer hours
A recent Prudential study showed that 43% of 65-year-olds are postponing their retirement and working longer, especially because Inflation is reducing value of their savings.
First, consider the different options you have for working longer hours. You can certainly keep plugging away at your full-time career, and many people do. But you can also opt for part-time employment, possibly in a position you’d love to do but haven’t been able to in the past. If you’ve ever wanted to work at a baseball stadium, for example, but can’t juggle the low pay and late evenings with family demands, now’s your golden chance. Many older adults also start small businesses, consulting firms or flexible side hustles like driving for Uber or Lyft.
If you haven’t reached full retirement age — which is 67 for people born in 1960 or later — working in retirement can reduce your Social Security benefits, but only if you make more than a certain amount. earn more (In 2024, that’s $22,320, or $59,520 during the year you’re 67.) Conversely, once you reach age 50, you’re allowed to save more in official retirement plans. With which you can get more share of your earnings. Later on
4. Make strategic money moves
By now you know the basics of managing your money, such as keeping your taxes low and letting your savings grow as much as possible. Those ideas helped you when you were young, and they are still widely applicable.
But now that you’re in retirement, things can easily turn on their head when you have new and interlocking factors to consider. Pulling a lot of money out of your carefully-guarded retirement accounts may seem scary and counter to good financial management, for example, but it can be a smart move that frees up cash to put into various vehicles that will support you in the long run. will serve better. .
“A lot of people get wrapped up around principal and income, meaning, ‘Listen, I want my principal to stay, and I just want to get income,'” Van Drunen says. “And that artificially drives people to higher-yielding instruments, which may actually lead to higher risk with them.”
The problem is, you may not have enough time Recover from a large market swing If you are investing more in risky investments. In another example, Van Drunen sees many people who are too focused on keeping their taxes low by not withdrawing from their tax-deferred retirement accounts — until the rules are in place. the force They start doing this when they get older, putting them in a higher tax bracket and losing the income they’ve worked hard for.
It’s difficult to give any advice on how retirees should manage risk exposure in their investment portfolio or minimize taxes, because there are so many variables. But the key is to think beyond Balances in your retirement accounts. You may need to weigh potential changes to your strategy over time to account for taxes, changing market winds or even staying longer than you expected.
“We educate and train our clients to focus on total return,” says van Drunen.
5. Consider downsizing your home
For people with empty nesters and large homes, this is a good idea to think about Is downsizing worth it?. But many people are resistant to this idea.
“It is difficult to separate yourself from all things – but very emotional Content — what you’ve accumulated over time,” says Lam. “And just selling a house and figuring out where to go — I mean, it’s a lot to go through.”
You can overcome some of these obstacles by closing the bandage as soon as possible afterwards. “I think the ones who go early do the best,” says van Drunen. “If you do it quickly, you’ll land well. If you wait until you’re 80, 85, it’s too late because the decisions are too hard to make. Things are hard to part with. “
If you’re in a situation where it’s a good fit, downsizing to a smaller home can benefit your retirement income in several ways:
- Immediate income from any home sale profit
- Less spending on utilities, property taxes, insurance, etc.
- Low maintenance needs, especially as you age
- Moving to a lower cost of living area where your income increases more
It’s hard to overstate the importance of streamlining Home maintenance Work, especially as you age and need to hire people for tasks you were once able to handle yourself. This is especially true if you plan to use your home equity to supplement your income in retirement. Keeping your home in good condition is a condition of most lenders.
6. Leverage your home
Many retirees tap into their home equity as a source of retirement cash flow. Reverse mortgages, which previously had a bad rap in the 2000s, now have stronger safeguards that make them more consumer friendly.
A Reverse mortgage A unique benefit can be very helpful: it’s a loan you take out against your home equity, but you don’t have to make monthly payments. Instead, the loan comes due after you die, move out, or fail to meet loan conditions such as property taxes, insurance, and home maintenance. When the loan becomes due, many homeowners (or their heirs) choose to sell the home and use the proceeds to repay the lender.
“You can set it up so that you receive payments as long as you live, even as your mortgage balance continues to grow,” says Lam. In this way, the proceeds from a reverse mortgage can become almost like a secondary Social Security payment that continues as long as you maintain the terms of your loan.
There are other creative ways to use your home and other assets. You may want to use a home equity loan or line of credit as a funding source to start a small business, for example, if you are able to continue making monthly payments. Or some older adults supplement their income by renting out a room or accessory dwelling unit (ADU) in their home. Done right, this can open the door to a number of tax breaks on rental income, to boot.
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