Increase Your Retirement Income

4 Ways to Increase Your Retirement Income

Updated on Oct 15 2019

Retirement planning is more complex in the 21st century so you need to be proactive to increase your retirement income using creative measures. Americans used to have pensions and retirement plans through their work, but today they are having to be proactive to prepare for retirement themselves — or enlist the help of a professional financial advisor.

Decades ago, retirees could simply shift their investments into fixed income, which historically paid higher rates of interest. Today, those same investments likely pay very little. Complicating matters further, we’re all living much longer, so we need to be careful we don’t outlive our money.

How Can You Increase Your Retirement Income?

Strategic retirement planning and careful investment management are more important than ever. Here are some easy things you can do to help prepare for your future.

1. Reduce Your Investment Expenses and Fees

Inflation can affect your buying power and costs related to your investments can reduce your return. The easiest way to increase what you earn is to simply reduce your costs.

Mutual funds and exchange-traded funds (ETFs) usually have hidden fees. Typical costs include the expense ratio for each mutual fund or exchange-traded funds you own. That’s a fee you pay to the manager of that fund. This fee doesn’t appear on your mutual fund statements, so if your investment portfolio includes these, check with your advisor or bank to find out the cost of those fees and see if there is a lower-cost similar option.

Additional fees might include transaction fees and loads. Always take these fees into consideration when choosing your investments. Make sure to do your research and ask your advisor or bank if the lowest-cost options for each investment are being used in your retirement portfolio.

Remember that even a small percentage compounded over time can make a significant difference in the future. It’s unfortunately quite common for investors to be put into more expensive investments because they pay the broker a bigger commission. Do your due-diligence to reduce or eliminate the fees as much as possible as even a modest decrease in investment expenses can result in additional yield for you.

2. Take Advantage of Catch-Up Contributions

Once you reach age 50, catch-up provisions in the tax code allow you to increase your tax-advantaged savings in several types of retirement accounts.

For a traditional or Roth IRA, the annual catch-up amount is $1,000, which boosts your total contribution potential to $6,500 in 2018.

If you participate in a 401(k), Roth, 403(b), or similar workplace retirement savings plan, the catch-up opportunity is even greater—up to $6,000 a year. That means you can contribute up to $24,000 in 2018.

Participants in a SIMPLE IRA or 401(k), designed for self-employed individuals and small businesses, can take advantage of a $3,000 catch-up contribution, bringing their total contribution potential to $15,500 for 2018.

Once you’ve reached 55, there’s another opportunity to make catch-up contributions — Health Savings Accounts (HSAs). Like in an IRA, the catch-up amount for an HSA is $1,000. With the catch-up, the total HSA contribution potential for 2018 is $4,450 for individuals and $7,900 for families.

3. Delay Your Social Security Benefit to Increase Your Future Income

While you are eligible to claim Social Security benefits) as early as age 62, your monthly check could be nearly twice as much if you wait until you’re age 70. Before claiming your benefits, weigh your options:

  • Consider working a few more years – If you can work a few more years or have other sources of income, delaying social security checks until age 66 or older will increase your monthly benefits by 33 percent or more.

  • Gauge your payouts based on your highest years of earning – You can also boost payouts if you work longer as your benefits are based on your highest of 35 years of earning, meaning if you’re making more money, you can displace some of your lower-earning years.

If you are healthy and able to work, put in a few more years on the job to increase your earnings and delay taking Social Security benefits. If you work an additional three to five years, you’ll increase your Social Security earnings exponentially.

4. Be As Tax-Efficient As Possible

Even if you’re on track with your retirement savings, tax-advantaged accounts are attractive long-term investment vehicles and tax-efficient planning tools.

With traditional IRAs or 401ks, contributions reduce your taxable income in the current year, as long as you are eligible, though withdrawals are taxable. These traditional accounts also offer tax-deferred compounding. With Roth IRAs, you pay taxes upfront but withdrawals are tax-free when you reach 59½; assuming certain conditions are met as outlined by the investment details. Roth IRAs offer the potential for tax-free compounding. That means you’ll have more money available to work for you and potentially grow faster than in a fully taxable account.

If your employer offers a high-deductible health care plan (HDHP) with a health savings account (HSA), you may want to consider electing the HDHP and opening an HSA. HSAs have a unique triple tax advantage that can make them a powerful savings vehicle for qualified medical expenses in current and future years. For example, contributions, earnings, and withdrawals are tax free for federal tax purposes.

To make the most of your HSA (if you have access to one and you can afford it), you may want to consider paying for current-year qualified medical expenses out of pocket, and letting your HSA contributions remain invested in your HSA. That way, the money has the potential to grow tax free and be used to pay for future qualified medical expenses, including those in retirement.

Be Strategic When You’re Planning Your Retirement

It’s important to remember that even though you may feel healthy and fit at age fifty, there is a distinct difference between the decades in terms of financial planning. The fifty-plus-year-old needs to consider protecting and cleverly growing assets built, as well as contemplate what could postpone retirement.

Savvy financial planning and taking advantage of ways to boost your retirement income will help you develop a financial portfolio you will not only be proud of, but will also greatly influence your quality of life and financial success in your golden years.

If you haven’t already done so, connect with an expert financial advisor to learn more ways to increase your retirement income through the right investments and planning.

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