Your retirement should be a time of enjoyment and fulfillment, when you finally have the time to pursue the things you’ve never quite gotten around to. But it’s unlikely you’ll get around to them at all if you’re lying awake at night, worrying over running out of money. A financially secure and comfortable retirement is possible with the proper considerations, so that you really are free to live as you please. Prevent yourself from living off of savings alone by creating a robust income generation strategy. Even in your golden years, there are ways to continue to replenish your earnings. Based on our expertise, here are the top five ways to do so:
1. Reduce Your Tax Burden
Income taxes can be your largest expenditure in retirement. Withdrawals from tax-deferred accounts, such as traditional IRAs and 401(k)s, are subject to income tax in the year you withdraw those funds, potentially leaving you with a hefty tax bill. You may know how much you’ve saved in each of your accounts, but do you know how much you’ll pay in taxes on those savings?
In order to maximize your income, consider relying more heavily on strategies like Roth conversions or tax-efficient retirement accounts for savings. Minimizing your tax burden is a core focus of our work at Secured Retirement, and we believe this is one of the most impactful ways to maximize your retirement earnings.
2. Make The Most of Social Security
Social Security stands out as a particularly valuable source of retirement income, offering financial security throughout a lifetime. In fact, the Stanford Center on Longevity reports that Social Security income meets more retirement planning goals than any other retirement income generator. A few reasons for this include that it’s:
- Tax-privileged: A portion of each payment is provided tax-free. This is in contrast to other retirement options like annuities, where all payments are taxable as ordinary income.
- Inflation-adjusted: These benefits keep pace as the cost of living rises.
- Cheaper than other forms of longevity insurance: Social security is cost-effective, offering financial security without the worry of funds running out.
Social Security benefits are essential, and the optimal strategy for it often depends on individual circumstances. Tailoring claiming strategies and their timing to ensure you can spend confidently in your retirement.
3. Rebalance Your Portfolio
Especially as you near retirement, achieving the right mix of assets becomes more and more important. The main reason for rebalancing is to control risk, not necessarily to improve returns, and in doing so, you’ll better preserve your nest egg. For example, right now, US stocks are having more success than US bonds and international stocks, and this continues to shift. Leading up to retirement, your margin of safety is actually smaller than when you’re actually in retirement. To ensure your portfolio keeps on track, it’s important to rebalance on a regular schedule.
4. Guard Your Nest Egg from Inflation
Inflation is as high as ever right now and, unfortunately, it can potentially erode your retirement income by diminishing your purchasing power over time. Everyone suffers because of inflation, but especially when considering the cost of healthcare, a particular spending cost for many older adults, it’s even more important to be able to defend against it in retirement.
While it can be difficult, it is possible to provide some insulation from inflation. Fixed-payout assets can often take the biggest inflation hit so diversification is key. Treasury Inflation-Protected Securities (TIPS) and real estate investment trusts (REITs) provide effective solutions, as they’re not highly correlated with stock or bond markets.
Additionally, when planning your spending, being a little more conservative with your starting withdrawals in periods of high inflation can be beneficial. While higher prices might not make a huge dent in your retirement over one or two years, they can have a huge impact over 20 to 30 years, giving inflation its moniker as retirement’s “silent killer.”
5. Explore Additional Income Options
Diversify your retirement income sources by exploring alternative investment opportunities, such as real estate, annuities, or dividend stocks. The most successful retirements aren’t built on assets or savings alone, they’re built on your ability to continue generating income in retirement. By creating a diversified income plan, you can mitigate risk and ensure your long-term financial security in retirement. These assets provide additional streams of income to supplement your retirement savings and enhance financial resilience.
Income generation is a central component of a successful retirement plan, and it’s an area we specialize in. By implementing strategies in these five areas, you’ll be well-suited to enjoy a robust retirement plan that withstands market fluctuations and provides financial security. You deserve the retirement you’ve dreamed of. To review your plan for income in retirement, please give us a call at 952-460-3290.
