5 Proven Ways to Boost Your Retirement Income
"Well, today people have to be self-reliant if they want a secure retirement income."
-- Scott Cook
Scott Cook, who is a co-founder of Intuit , maker of the TurboTax software, is more right than ever these days. Just a generation ago, many millions of people had pension incomes to look forward to, but those are increasingly rare in the private sector. Most of us now have to rely largely on ourselves for our retirement income.
Here are five ways you may be able to boost your retirement income:
Work a few more years
The idea of working a few more years and retiring a few years later than we planned isn't generally appealing, but it's a powerful strategy.
Doing so will let you save and invest more for retirement, while putting off having to start drawing from your nest egg. Consider this example: If you sock away $10,000 per year for 20 years and it grows by an annual average of 8%, you'll end up with about $494,000. If you can keep going for another three years, still averaging 8%, you'll end up with... more than $657,000! That's more than $160,000 extra just for delaying retiring for a few years.
If you're collecting matching funds in your 401(k) from your employer, you'll collect a few more years' worth of that free money, too -- and will remain in any employer-sponsored health insurance plan longer, too, possibly permitting you to save money on health-care spending.
This strategy isn't a sure thing, though, because many times we end up retiring earlier than we planned, because of an unexpected job loss or health setback. If you can employ it, though, give it some consideration.
Buy a fixed annuity
Many people are rightly skeptical of annuities. After all, some of them -- such as variable annuities and indexed annuities -- can be quite problematic, often charging steep fees and sporting restrictive terms.
Fixed annuities , though, which can start paying you immediately or on a deferred basis, are much simpler and can be excellent options. Following are examples of the kind of income that various people might be able to secure in the form of an immediate fixed annuity in the current economic environment. (You'll generally be offered higher payments in times of higher prevailing interest rates.)
Annual Income Equivalent
Data source: immediateannuities.com.
Annuities can provide much peace of mind, removing stock market moves and the economy's current condition from your worries. A deferred annuity can also be smart, starting to pay you at a future point, such as when you turn a certain age. A 70-year-old man, for example, might spend $50,000 for an annuity that will start paying him $1,588 per month for the rest of his life beginning at age 85. That can remove any worries about running out of money late in life.
Consider a reverse mortgage
Reverse mortgages are not perfect for everyone, but they're not quite as problematic as they used to be, either, due to regulations in recent years, in fact, they can make good sense to some people in some circumstances. With a reverse mortgage, you essentially borrow money based on your home equity, and you don't have to pay it back until you die or stop living in your home. It can deliver a welcome income stream -- and a (generally) tax-free one, too -- but it can also mean your heirs don't get to inherit your home. Know, too, that you have to qualify for a reverse mortgage, you may not get as much income as you'd hoped, and you'll face closing costs, too. Learn more about reverse mortgages if you're interested.
Get a part-time job
This option can sound awful to some people, but it's actually good not only for generating extra retirement income but also for many retirees who don't even need any more income. That's because retirement can be a shock to the system and can be stressful for people who thrive on routines and having work to do. Without having to go to work every day -- where socializing, which is important to all of us, can take place -- some retirees grow restless or even depressed.
So how might you work in retirement? Well, there are myriad possibilities. You might be a cashier at a local retailer or deliver newspapers. You might do some freelance writing or editing or graphic design work. You might tutor kids in subjects you know well, or perhaps teach adults or kids a foreign language or how to play the piano. You might do some consulting -- perhaps even for your former employer. You could babysit, walk dogs, or take on some handy-person jobs. These days the Internet offers even more options. You might make jewelry, soaps, or sweaters, and sell them online.
Be strategic about Social Security
Finally, remember that even though you'll have to rely on yourself and your investments for much of your retirement income, you'll probably also have Social Security income to help support you, too. Don't assume that your Social Security benefits are fixed, though -- or that they'll be enough without your supplementing them. The average Social Security retirement benefit was recently $1,365 per month, or about $16,000 per year, with the maximum benefit for those retiring at their full retirement age recently at $2,687 per month -- or about $32,000 annually.
Just as there are many ways to boost your retirement income, there are a bunch of ways to boost your Social Security income as well. You can increase or decrease your benefits by starting to collect Social Security earlier or later than your "full" retirement age, which is 66 or 67 for most of us, and you can make some smart moves by coordinating with your spouse when you each start collecting.
If you and your spouse have very different earnings records, for example, you might start collecting the benefits of the spouse with the lower lifetime earnings record on time or early, while delaying starting to collect the benefits of the higher-earning spouse. That way, you both get to enjoy some income earlier, and when the higher earner hits 70, you can collect their extra-large checks. Also, should that higher-earning spouse die first, the spouse with the smaller earnings history can collect those bigger benefit checks.
With a little planning and perhaps some work, too, you may be able to boost your retirement income considerably. Fortunately, many of the ways to do so are not too painful or unpleasant.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.