So you want to be flush with cash as a senior. Aiming to increase your retirement income should be a top goal because far too many seniors struggle financially during their golden years.
You don’t have to be one of them — just follow these five proven ways to increase the income you’ll have after you’ve left the working world.
1. Wait to claim Social Security benefits
Waiting to claim Social Security benefits means your check will be bigger. That’s because benefits are reduced if you retire before full retirement age and increased if you retire after. Benefits go up until age 70, at which point you max out. And you can not only enrich your own income by waiting, but can also boost the survivors benefits your spouse will receive if you were the higher earner and your husband or wife outlives you.
Waiting to claim Social Security is recommended by experts, but be aware it comes at a cost. You forego years of benefits to max out since you’ll have to claim benefits at 70 instead of 62, when you first become eligible. But if you live long enough, you’ll end up better off. You can calculate how long you’d need to live to break even by figuring out how much income you miss out on by waiting and dividing that by your higher monthly benefit. Or use this chart to help you decide when it makes sense to claim benefits.
2. Move to a state with more favorable tax rules
There are 37 states that don’t tax Social Security benefits. And some states don’t tax pension income or even income withdrawn from a 401(k) or IRA. If you don’t live in one of those states, it may be worth moving. Every dollar you don’t pay in taxes is another dollar in your pocket you get to use for something more fun.
The Tax Cuts and Jobs Act temporarily capped the amount of state and local taxes paid that you can deduct from federal taxes, so reducing state tax is more important than ever. A move to a state that takes less of your money could leave you with thousands of dollars extra to enjoy.
3. Work part-time during retirement
Earning income from a job is, obviously, a good way to boost your retirement income. But there’s a caveat. If you’re under full retirement age and receiving Social Security benefits, your monthly benefit will be reduced if you earn too much. You do get a credit later if you receive reduced benefits because you’re working, but the benefit’s cut means you may not increase household income much by getting a part-time job.
The good news is, after full retirement age, you can work as much as you want without a reduction in Social Security benefits. So go ahead and look into consulting work with your old employer or find a new job you’re passionate about.
4. Choose a Roth account for retirement savings
While you may be able to reduce state taxes by moving to a different locale, you still have federal taxes to contend with. The federal government taxes a portion of Social Security once your income reaches a certain threshold, and it also taxes withdrawals from traditional 401(k)s and IRAs.
What it doesn’t do, however, is tax withdrawals from Roth 401(k)s and Roth IRAs. While many investors choose to take their tax breaks up front by investing in a traditional 401(k) or IRA with pre-tax dollars, you could boost your retirement income by opting for Roth accounts instead.
Sure, you won’t get a tax break when you put your money in, which can make it harder to max out your accounts. But this approach can pay off when your money grows tax free and you take out the cash as a senior without giving any of it to the federal government.
5. Save more money
The last way to increase your retirement income is the hardest to achieve — save more cash throughout your life. The more money you save, and the younger you are when you save it, the more compound interest helps your next egg grow.
Boosting your savings by just $1,000 per year could add hundreds of thousands of dollars to your retirement accounts. A bigger account balance means you can withdraw more without risking running out of money, so income from savings will be higher.
Of course, coming up with extra money to save isn’t always simple. But where there’s a will, there’s a way. Consider a side hustle; live on a budget that prioritizes savings; cancel your cable and divert the funds to retirement accounts; and stop wasting money on little stuff. Of course, you should also take advantage of any 401(k) match your employer provides and try to bank your raises, or divert salary increases right to retirement savings before you get used to having a bigger paycheck.
A bigger retirement income is within reach
You can achieve a bigger retirement by taking these steps — and there are options for people of every age. Whether you’re already retired and increase your income by moving to a state with lower taxes or you’re starting your career and boost your savings, you can take action today to get on the path toward a higher income as a retiree.
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