RETIREMENT

10 Ways to Boost Retirement Income

Planning for retirement can be easier if you understand the options available to you as well as their associated risks and rewards.

The greatest risk in retiring is that of outliving your income or running out of money.

The good news is that regardless of the stage of life you are currently in, there are steps that you can take to help make sure that your retirement years are financially secure.

1. Check Out Your Employer's Retirement Benefits

Many employers offer tax-deferred retirement investing options such as 401(k) accounts, annuity accounts, and health savings accounts (HSA).

These accounts can serve as retirement income boosters regardless of Social Security or other pension benefits.

Contributions to these accounts can usually be payroll-deducted on a pre-tax basis, allowing you to contribute money to your account easily while reducing the amount of payroll taxes that would be deducted from your paycheck. 

It should also be noted that many employers "match" contributions to employees' retirement accounts in specific percentage amounts based upon the amounts that employees contribute.

Therefore, it is a good idea to check with your employer to see if they do match your contributions and, if so, find out the percentage.

If they match dollar-for-dollar, the above $100.00 contribution would become $200.00 that goes into your account while you are still only paying $100.00 per paycheck.

If your employer matches 50%, then your account will receive $150 per paycheck while you are still paying only $100.

A final note about traditional IRA's and 401(k) accounts is that these accounts are restricted.

There are specific instances in which you may withdraw money from these accounts without incurring a penalty and some accounts may be set up to freeze the funds if you terminate your employment before retirement age.

Additionally, when funds are withdrawn from these accounts, the tax liability begins.

2. Consider a ROTH

A ROTH IRA may be a better choice if you are concerned about what you will owe in taxes when you begin withdrawing your invested funds at retirement.

While the pre-tax options of traditional IRA's may sound attractive to young working families, keep in mind that large income tax liabilities can be burdensome in your older years when you are most likely in a higher tax bracket and no exemptions such as children or home mortgage interest.

With a ROTH, you deposit money that has already been taxed. It can be deposited from your take-home pay or from your paycheck on a post-tax basis.

The interest that is earned on the deposited funds is tax-free, enabling you to withdraw your money during your golden years without worrying about paying more in taxes.

Additionally, the principal amounts deposited into your accounts is less restricted in terms of availability for withdrawal.

3. Social Security Options

Managing the manner in which you will begin receiving your Social Security payments in retirement can be a challenge. While you can begin receiving monthly benefits at age 62, the benefit you receive will be smaller than it would be if you waited until your full retirement age which can be between ages 65 and 70, depending upon the year of your birth.

Since most of us don't have a crystal ball and thus don't know how many years we will live after retiring, it can be difficult to decide when to take the plunge and begin receiving Social Security benefits.

If you are happy in your job you may wish to keep working until full-retirement age because you will receive your full benefit.

If you are ready to try something new at age 62, you can earn up to $17,640 per year while receiving a reduced Social Security benefit.

4. Start Saving Early

The earlier you begin saving for retirement, the greater your nest egg will grow especially in the current economic environment of lower interest rates.

If you choose fixed income savings instruments such as certificates of deposit or individual retirement accounts, starting a retirement savings plan early will give those monies more years for the interest to compound.

Another reason to begin saving early is that your risk tolerance is higher when you are younger.

Investing in securities and funds on the stock market that have a higher risk factor generally tend to provide higher returns.

It is always a good idea to consult an investment specialist before taking this route.

5. Choose Automatic Saving

The old adage of "pay yourself first" carries a lot of merits.

Consumers who don't practice this often save too little too late.

Despite your best intentions to make regular deposits into your retirement savings account, too often other things come up that can sabotage your savings plan.

Most banks and other financial institutions offer savings services in which a designated amount of money is automatically transferred from one deposit account into another.

These transfers can be modified as needed, but most people who opt for this service report that they easily adapt to the set-up and enjoy watching their retirement accounts automatically grow.

6. Consider Stocks that Pay Dividends

Investing in securities and structured funds is a great strategy for boosting retirement income, and some retirees have enjoyed the rewards of choosing stocks that pay dividends.

Unlike equities that must be sold in order to collect gains on the investments, securities that pay dividends allow you to keep the securities while reaping extra income in the form of dividends payments.

Dividends are often paid quarterly and can amount to significant sums of money, depending on the number of shares owned. 

7. Reverse Mortgage

The reverse mortgage should be approached carefully with a full understanding of the ramifications that go with it, but if you own your home this may be worth considering.

With a reverse mortgage, you borrow funds from a lender using your home as collateral.

The lender then pays you a monthly tax-free payment that can significantly boost your income for as long as you live in your home.

When you die or move to another residence, the loan must be repaid, usually necessitating the sale of the house.

If you aren't concerned about your heirs being unable to inherit your home and you need the income, the reverse mortgage may be a viable option for you.

It is strongly recommended that you seek guidance from an investment specialist before going this route, however.

8. Consider Relocating

For some retirees, moving to a new location can be an exciting and profitable way to boost their income.

The move may simply be selling your existing home and downsizing to a smaller home at a lower price that allows you to stash more cash into your savings fund.

This can also result in more savings in the form of lower utility and home maintenance costs.

It also may be profitable to move to a new location that has a lower cost of living.

There are some attractive locations across the U.S. that are cheaper to live in than others.

For example, the median home value in California was recently reported to be around $400,000 compared to around $225,000 in Utah and $157,000 in North Carolina.

9. Borrow Against Life Insurance

If you don't have a lot of debt to be paid in the event of your death, or if you don't have dependent children, borrowing against your life insurance policy might be a great way to put this asset to work for you now.

This strategy only works with life insurance that is "permanent" such as universal or whole life and not term life insurance.

As your insurance builds up cash value, you can make withdrawals that will reduce or eliminate the policy's value, but if you do not have dependents or debts that will need the life insurance proceeds, this may be a way to put the policy to work for you now.

10. Stick To A Budget

Failing to prepare and follow a personal budget can cost you money.

By controlling expenses and making an effort to plan your personal finances, you may be surprised at how much money you can save for, and during, retirement.

If you could boost your monthly savings by $1,000, your retirement accounts could see a boost of hundreds of thousands of dollars by the time interest compounds and values appreciate.

Summing It Up

The biggest financial risk in retirement is running out of money, especially in this economy where few employers outside of the government sector have pension plans.

While it appears that Social Security benefits will be around for the foreseeable future, the thought of depending upon Social Security alone without supplemental retirement income can be frightening.

Making changes now and taking proactive steps to boost retirement income, regardless of your age or financial situation, can make all the difference between surviving your retirement years and thriving in them. 

If you are uncertain as to what changes are the best fit for your situation, it is recommended that you seek the advice of a financial professional.