Most people spend their lifetime saving sufficient money to secure their retirement. This is particularly true for the salaried class, who strive to put aside some amount from every paycheck to use it for the later years of their life.
When you retire, there is a drastic shift in your financial strategy. While you were accumulating money and preserving wealth when you were working, you are now entering a phase where you will be spending that money. It is, hence, understandable to be concerned about having enough income to lead a comfortable retired life.
If you are wondering the same, this post offers a few helpful tips for maximizing your retirement income. Let’s have a look!
Exploring income-enhancing strategies
Your retirement income would ideally constitute a combination of multiple sources. For instance, one of these is Social Security. It is one of the longest-running programs in the U.S. designed to provide a financial cushion to senior citizens. Since the government guarantees social security, it is not affected by market volatility.
To maximize your social security income source, you can consider filing for it as late as possible. Most people tend to file around the age of 62. However, if you file later, your benefits will increase. For instance, if you retire at 66 and choose to file when you are 70, the benefits you receive will be around 32% higher.
Another income source is the 401(k) account- the most common employer-sponsored retirement program in the U.S. You can put aside a part of your pre-tax income every month that goes into your pension account. The money continues to grow tax-deferred until you withdraw while your employer also contributes to this account.
During your working years, if you switch jobs, you can roll it over to an individual IRA (individual retirement account) or your new workplace retirement plan or withdraw it. However, withdrawing only means you are cutting down a significant portion of your retirement income, depending on how much you have accumulated. You may also have to pay early withdrawal penalties and taxes on it as well.
Investment options
Another key strategy to increase your retirement income is to explore various investment options and choose a viable option that aligns with your current circumstances and risk tolerance and will also cater to your future needs.
The retirement income you set aside is not merely placed in your account. It is usually invested in the market with the aim to grow and counter the impact of inflation. Generally, retirement accounts are invested in stocks, bonds, mutual funds, ETFs, etc.
Now, when it comes to making an investment portfolio, you can do it via a robo adviser or work with a professional financial adviser to create a customized portfolio according to your circumstances and needs. The key is to consider a diversified investment portfolio so you can leverage the market highs and cope with the volatilities and resultant losses, if any.
Annuities to boost your retirement income
Purchasing an annuity implies adding an element of uncertainty to the income you are planning for your retirement life. Annuities are a form of contract between you and an insurance company. You pay in the form of a series of periodic payments or a lump sum amount. In exchange, you get a guaranteed income stream that may very well set you up for life. This is why it is regarded as one of the most viable and popular retirement tools.
When purchasing an annuity, you may have to decide between an indexed annuity vs fixed annuity. A fixed annuity comes with a guaranteed minimum rate of return that may be adjusted periodically or increased over time. Meanwhile, an indexed annuity is tied to a market index like the S&P 500. The returns it provides are capped depending on the performance of the index. When choosing which annuity to opt for, you must consider your financial objectives while also taking into account your risk tolerance.
Exploring alternative income options
The notion of saving enough and then managing it so that it lasts a lifetime can be daunting for some! If you, too, feel concerned about running out at some time despite smart planning, saving, and investing wisely, you can always consider a side hustle.
If you have a hobby or passion for something that you were not able to pursue during your active employment years, you can consider doing it once you retire. There can be many benefits of a side hustle!
Firstly, you can boost your income significantly. Moreover, it can help you lead an active and fulfilling life, particularly if you are doing something you love. If your side hustle involves socializing on a regular basis, it can make your days active and entertaining. It may also enable you to file later for Social Security, which will ultimately result in higher income for you.
Final thoughts
When it comes to retirement income and devising ways to increase it, there is no standardized approach to it. How you decide to spend, save, and invest money during your active years will greatly impact your retired life.
Before you decide what strategies you want to opt for to secure your financial future, think of how you want to spend your retired life. This will help you assess how much money you need to be able to experience that lifestyle. This will give you direction and help you decide how you want to maximize your retirement income.
