9 Proven Ways to Boost Your Retirement Income
Don't settle for financial insecurity when there are steps you can take -- some of them fairly painless -- to build a more comfortable future.
This article appears at the following website: fool.com
Having sufficient income in retirement is critical, yet many people worry that they won't have enough. Only 71% of retirees expect their savings and income to last until the end of their life, while a mere 42% of pre-retirees expect theirs to, per a 2019 report by the Alliance for Lifetime Income.
Fortunately, there are some ways to boost your retirement income -- via actions you can take now or later. Here's a look at several powerful ones.
No. 1: Work longer, retire later
The idea of delaying retirement won't appeal to lots of folks, but it's a powerful strategy for those who are behind in their saving for retirement. Not only does it allow you to save and invest more, but it also reduces the number of years you'll be retired -- so your nest egg will have to support you for fewer years. An added benefit is that you may be able to remain on employer-sponsored health insurance longer.
As an example, imagine that you sock away $1,000 per month for 10 years, earning an average annual return of 8% and ending up with $187,746. If you can work, save, and invest for three more years, you'd end up with $278,579 -- a difference of more than $90,000! The bigger your nest egg, the more income it can generate for you.
No. 2: Keep working a little -- in retirement
Meanwhile, you might also aim to work some in retirement, at least in your early years of retirement. That will take the pressure off your nest egg: It will get drawn down at a slower rate and can therefore last longer. As an example, if you work three four-hour shifts per week and earn $12 per hour, that's $144 per week, pre-tax. On a monthly basis, it's $624 -- or nearly $7,500 per year -- a very meaningful sum. You may find enjoyable forms of work or some cash-generating pastimes, which can make this strategy appealing.
Working part-time in retirement can also lend some structure to your days and weeks, which many retirees find they miss. And it can offer opportunities for interaction with other people, too, reducing any feelings of isolation or depression.
No. 3: Move to a lower-cost home or region
This is another strategy many won't embrace, but give it some thought: If you can move into a less costly home, you'll likely save a lot of money by spending less on a mortgage, property taxes, home insurance, maintenance, repairs, utilities, landscaping, and more. Moving to a less costly part of the country (or state) can be effective, too. Consider, for example, that the median home value in California was recently about $556,815, while it was only $270,320 in Arizona and only $246,107 in Florida.
No. 4: Set up pension-like income via annuities
Most of us should at least consider annuities as possible components of a retirement plan -- and favor fixed annuities over indexed or variable ones, as fixed annuities often feature lower fees and less restrictive terms. With a fixed annuity, you fork over a sizable sum to an insurance company, and in return, you're promised a fixed income over a specified term, which could be for the rest of your life. Fixed annuities can start paying you immediately or on a deferred basis. The table below shows what kind of monthly sums you might be offered today for an immediate fixed annuity:
|Person/People||Cost||Monthly Income||Annual Income Equivalent|
Deferred annuities, which start paying you some time after you bought them, make up for that lag in payment by offering heftier payments. They can be especially helpful in preventing you from running out of money later in life, because they can be set to start paying you relatively late, such as beginning at age 80. For example, a 65-year-old man might pay $100,000 for a deferred annuity that will pay him $1,137 per month for the rest of his life -- beginning at age 75.
No. 5: Save more
This strategy for getting more income in retirement is rather straightforward: Save and invest more -- now and continuing until you retire. If you're currently sending 10% of your pay into a 401(k) account, try to send 12% or even 15% or more. If you're saving and investing $12,000 per year and you can bump that up to $15,000, that extra $3,000 annually could grow to almost $47,000 over a decade.
Here's how much you might accumulate over various periods with such sums:
|Growing at 8% for||$12,000 invested annually||$15,000 invested annually||$18,000 invested annually|
Of course, saving a lot is easier said than done, so think hard about ways that you might spend less and/or make more money.
No. 6: Invest in dividend-paying stocks
It's not enough to just save a lot -- you have to invest that money, too, and effectively. A simple low-fee broad-market index fund such as the SPDR S&P 500 ETF (SPY) will do well, spreading your money across 500 companies that make up about 80% of the U.S. stock market's value.
We had heard about annuities and were investigating them for our IRAs. We also heard bad things about pushy brokers over the years. So when we went to the ImmediateAnnuities.com site we were skeptical about calling them. But whenever we called their staff was really friendly. They answered all our questions and one of their reps even told us that at our ages there was no advantage to buying the annuity with our IRAs. These guys are really honest!
Beyond that, look to dividend-paying stocks, because they can provide meaningful income now and throughout your retirement without your having to sell off many or any shares for cash. For example, if you have $300,000 invested in a bunch of dividend payers with an overall average dividend yield of 4%, you'll be collecting about $12,000 per year, equal to about $1,000 per month. And better still, shares of healthy and growing companies should rise in value over the years, and their dividend payouts are likely to increase, as well, often topping the rate of inflation handily. Even when the economy is in a slump, dividend payers will be aiming to keep paying out that income to you.
Instead of having to study the universe of stocks looking for the best dividend stocks, consider a dividend-focused exchange-traded fund (ETF) such as the iShares Select Dividend ETF (DVY), which recently yielded about 3.5%. The iShares U.S. Preferred Stock ETF (PFF) is another option to consider, and it recently yielded 5.25%. (Preferred stocks may not grow as quickly in value, but they tend to offer more significant dividends.)
No. 7: Borrow against your life insurance policy
This income-generating strategy is a bit more out-of-the-box: Look into borrowing against your life insurance policy, if you have a "whole" or "permanent" policy (as opposed to a "term" one). Leave it in place if anyone, such as children or parents, is still depending on you financially, but if it's no longer really needed, it can generate needed cash. Whatever you take out of the policy will reduce (or wipe out) its value -- and those withdrawals are typically tax-free.
No. 8: Consider a reverse mortgage
Another somewhat unconventional way to generate additional retirement funds is via a reverse mortgage. That involves getting a loan with your home as collateral, often receiving the money in monthly (tax-free) installments. The loan won't have to be repaid until you're no longer living in the home -- such as when you die or move into a retirement home or care facility -- and it's generally paid off by selling the home. There are pros and cons to consider, though. For example, you won't be able to leave your home to your heirs, unless they can pay off the loan. Read a lot about reverse mortgages before getting one.
No. 9: Get more from Social Security
Finally, there's Social Security. You've probably already qualified for retirement benefits in the future, as it generally takes only 10 years' worth of work. But the amount you'll ultimately receive is more under your control than you might think, as there are various ways to increase your Social Security benefits -- such as by delaying when you start collecting them. Working a little longer might also help, too.
Your current financial situation may not be ideal, but there are probably a bunch of things you can do now and later in order to bolster your future financial security.