Maximizing Retirement Income: 10 Tips for Middle-Class Retirees
Stretching limited savings across decades of retirement poses a daunting financial challenge for many middle-class Americans. However, strategic planning around critical areas like Social Security, healthcare, taxation and more can profoundly impact income sustainability.
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We compiled advice from leading financial experts on how to maximize dollars during your golden years.
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Consider Working Longer To Pad Savings
According to Katherine Tierney, chartered financial analyst (CFA), certified financial planner (CFP) and senior retirement strategist at Edward Jones, nearly 60% of retirees regret not working longer to accumulate more savings cushion, with many saying they should have worked at least an extra decade.
“Deferring or working in retirement can allow you to earn more income and accumulate more retirement savings,” she said.
Part-time work or phased retirement transitions help many seniors stay engaged and feel purpose while covering expenses. “It can provide for a longer and more financially secure retirement,” Tierney said.
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Optimize Social Security Claim Strategy
Dominic James Murray, independent financial advisor and CEO of Cameron James, said deciding when to claim Social Security critically impacts monthly income. “Delaying these benefits can lead to a significant increase in monthly income,” he said.
While some health or urgent financial situations warrant claiming Social Security early, Murray explained “for those in good health, the increased benefits from delaying can substantially add up over a longer retirement period.”
He advises clients on optimizing their claim ages based on their individual health outlook and longevity estimates in order to maximize their total lifetime payments.
Incorporate Income Annuities
According to Murray, annuities can generate “an additional lifetime income source for you and your spouse in retirement.” Given rising interest rates currently offering more attractive payouts, he said retirees should consult advisors about whether adding annuities to supplement pensions and Social Security payments would prove beneficial.
Creating layered income streams is a good way to mitigate the risk of funds running low.
Prioritize Roth Savings
Murray said Roth retirement accounts can boost income since withdrawals usually escape taxation. “One dollar contributed to a Roth account will result in more retirement income than one dollar contributed to a traditional retirement account,” he said.
While Roth contributions don’t minimize current tax bills like pre-tax accounts, once you hit retirement age, your withdrawals from Roth accounts are untaxed, which is a serious benefit.
Accelerate Savings From a Younger Age
Citing a Edward Jones study, Tierney explained “on average, retirees began saving for retirement at age 38 but say they should have started nearly a decade earlier.” She said that compounding interest over more years will dramatically multiply your wealth even when you’re saving small amounts.
“For someone contributing $700 a month and earning 6% annually, starting a decade earlier could more than double the amount they are able to withdraw from their investment portfolio at 65,” Tierney said.
Maintain a Cash Reserve
Murray said to keep an emergency fund in an easily accessed, low-risk savings account as a buffer for surprise costs and to help avoid selling investments during downturns. He helps clients decide the right amount of cash to keep on hand based on factors like their monthly expenses and foreseeable spending needs. This helps to ensure they can get to their money readily when needed without derailing their long-term investment strategies.
Adopt Tax-Efficient Withdrawal Strategies
“Implementing a tax-efficient withdrawal strategy can significantly enhance retirement income,” Murray said.
He assists clients in sequencing asset drawdowns in a way that minimizes their annual tax bills, such as tapping taxable investment accounts first to preserve tax-advantaged growth elsewhere. Understanding unique IRA, 401(k) and other account tax treatments is an important factor to optimizing take-home income.
Review Budgets and Downsize
According to Murray, “managing expenses is an essential aspect of maximizing retirement income.”
He collaborates with clients on budgets which reflect the retirement lifestyles they want, while also identifying potential savings opportunities. Murray added that downsizing real estate can also reduce ongoing bills if needed, while also freeing up assets.
Seek Professional Financial Planning
Murray strongly advocated that “professional financial advice is crucial for developing a personalized retirement income strategy.”
He said effectively optimizing investments, taxes, healthcare and Social Security requires factoring in individual health outlooks, expenses, family dynamics, savings levels and risk tolerances. Holistic advice from a financial advisor can maximize your income in order to support your retirement goals.
Delay Healthcare Costs
Finally, Tierney said to postpone tapping into retirement savings to fund medical costs as long as feasible.
“Make sure you have a good supplemental policy to pick up where Medicare leaves off,” she said. And Tierney also said reviewing Medicare Advantage plans with drug coverage can help limit expensive gaps in coverage, conserving your hard-earned retirement dollars.
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This article originally appeared on GOBankingRates.com: Maximizing Retirement Income: 10 Tips for Middle-Class Retirees