One simple truth about retirement is that no one knows for certain how long it’s going to last. This uncertainty can keep you awake at night, but you’ll sleep soundly after finding ways to stretch your retirement income. Simply cutting back on spending isn’t the only answer, and it’s not much fun, either. So, it’s time to get smarter and look at the problem from a financial advisor’s perspective. With the right approach, you’ll be ready for anything — even a lifespan that stretches past your 100th birthday.
Ideas That Can Help You Make Your Retirement Income Last Longer
Here are four easy ways to stretch your retirement income as far as possible after you stop working:
#1: Consider the tax implications when you plan your retirement
One of the best ways to stretch your retirement income is by paying lower taxes each year. If you plan it right, you’ll have both taxable and non-taxable retirement income sources in your later years. For example, an employer-matched 401k plan and setting up an individual Roth account lowers your tax bill through tax-deferred contributions. Once you’ve reached full retirement age, the IRS doesn’t count your Roth distributions as taxable income. This tactic also keeps you in a lower tax bracket after you retire. Double win!
If this sounds too complicated, don’t worry. A skilled advisor can help you develop a strategy to keep your taxes low today as well as after retirement.
#2: Delay your Social Security retirement benefits until your 70th birthday
Sure, you can choose to retire early at 62 (sunny beach, here I come!), but it comes with some consequences. Starting your Social Security benefits early can reduce them by as much as 30%. You’ve probably heard this before since delaying can make such a huge difference in budgeting your retirement income. While waiting to collect isn’t always an option, if you can wait, you’ll increase your benefits by up to 24%. If you’d like to look at some real numbers, visit SSA.gov and scroll down to the benefits calculator. Enter your personal information to see how retiring at 70 could help you stretch out your monthly retirement income.
One important note: If decide to delay your Social Security retirement distributions, be sure to apply for Medicare at 65. If you don’t, you’ll have to pay a penalty!
#3: Get creative with your housing options/living situation
Your house is likely your biggest asset as well as your greatest expense. With that in mind, think about how you can use that asset to maximize your retirement dollars. You can:
- Take out a home equity loan
- Downsize your property
- Rent out one of your rooms
- Work part-time from home and use the home office tax deduction
Your home’s almost always your biggest asset, so don’t be afraid to use it. That said, do be careful if you’re considering taking out a reverse mortgage.
#4: Invest now where the dividends pay off most down the road
As you get closer to retirement, your portfolio needs to evolve. If you prefer investing in the market, look for dividend-paying stocks — especially after you turn 50. When you buy stock in a company, you aren’t just hoping its total value rises. Rather, you’re purchasing a share in that company’s ownership. In return for purchasing that stock, you have the right to participate in electing the company’s board of directors. You also get paid a share of the company’s profits in dividends, at that board’s discretion. Then if your company declares a $1 dividend for any given quarter and you own 100 shares, you’ll receive $100.
