As inflation rises in the U.S., many people worry about their retirement. Listed below are different ways to help you boost your retirement income.
Boost Your Retirement Income by Working
Staying in the workforce is the apparent solution to longevity risk and retirement savings anxiety. Your retirement fund grows by two weeks with every paycheck rather than shrinking by two weeks.
There are plenty of Americans who have reached this conclusion. The average American working age is 66, up from 60 in 1995, according to a 2018 Gallup poll. Most Americans say they will work until they are in their golden years, but corporate America and fate can have other plans.
You can’t predict if or when you’ll have to stop working full time due to disability, and high-income 50- and 60-somethings are easy targets for cost-cutters. In a recent study conducted by the Employee Benefit Research Institute, the median retirement age in the United States is 62, and half of the workers retire earlier than expected. Most people aren’t able to keep working.
Make the most of Social Security to boost your retirement income.
To avoid outliving your savings, it makes sense to postpone Social Security as long as possible. Waiting until you’re 70 may be a good idea if you’re healthy and concerned about your income.
Social Security benefits are available to individuals as young as 62 and as old as 70; it is generally believed that retirees who postpone applying for Social Security benefits for as long as possible will gain up to 8% additional benefits a year. In these calculations, individual circumstances can vary, so it’s best to consult an expert.
Withdraw Retirement Savings Tax-Efficiently
Regarding withdrawals, there are complicated calculations to consider for Americans with a decent-sized retirement fund. Many savers mistakenly believe they should leave their tax-advantaged 401(k) or IRA savings untouched during early retirement and live off taxable savings. You can make a big mistake if you do that, especially if you are in a 0% or 10tax bracket. You can quickly end up in a higher tax bracket once you claim Social Security and take required distributions from your retirement plans. Taking distributions from a 401k or IRA to maximize your tax bracket once you reach age 60 is highly beneficial in the long run. The low-income years are a great time to move money out of tax-advantaged accounts. Hiring an expert to help you spend your taxable, tax-advantaged, and tax-free savings is worthwhile.
Increasing your retirement income by reducing your spending
According to the 4% Rule, retirees can withdraw an amount equal to 4 percent of their savings during their retirement and adjust for inflation every year after that. Financial planners generally view the 4% rule more as financial folklore than a solid guideline for understanding how much retirement savings you can withdraw each year.
Retirees cannot control significant events like property tax increases or severe health problems. Nevertheless, they can control how much they spend, and it might be wise to consider a radical lifestyle change to slow the erosion of retirement savings. Moving to a cheaper area with lower entertainment costs and property taxes can save a lot of money. Downsizing your home and pocketing the difference is the same. Spending more on travel or a second home during early retirement is normal, but if it increases longevity risk anxiety, that’ll be less fun.
You can increase your retirement income by working gigs.
Making more money might be the best way to boost your retirement savings. By age 85, every dollar earned and saved at 65 could be worth $4. Many people may not find full-time work appealing or available. Our society is fortunate to live in an era of part-time work, facilitated by the gig economy and accelerated by the pandemic.
With most of the kinks worked out, many employers are all-in on remote workers. Flexible hours and no commuting costs are two advantages of gig work at home. Work-from-home jobs used to be primarily data entry or customer service, but that is rapidly changing. Part-time gigs can include tutoring from home, and these gigs pay well.
However, remote work depends so heavily on technology that applicants must include a skill section demonstrating familiarity with tools like Zoom and Google Drive; retirees might face ageism.
Retirees should also consider their tax bills. Uninitiated gig workers usually have to pay self-employment taxes and make estimated tax payments during the year. There can be additional tax concerns for older gig workers. For example, even a small increase in income can have a significant impact on Medicare premiums. Gig work might push low-income people into taxable brackets even if they wouldn’t otherwise owe federal taxes on Social Security payments. Most people consider it worth it. If you are considering this, it is important to understand how it will affect your taxes and Medicare