How to increase your retirement income – Forbes Advisor
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Worried about outliving your retirement savings? You’re not alone. This very real fear is called “longevity risk” by financial analysts, and it’s not really paranoia: According to SimplyWise, 49% of Americans say they fear outliving their retirement savings. And unsurprisingly, then, about half of people plan to work in retirement, per TransAmerica.
There are two ways to allay your fears: make the most of the money you have, or figure out how to do more. We’ll discuss both strategies, but a big takeaway is that the new culture of remote working that has emerged in response to the Covid-19 pandemic offers plenty of opportunities to generate more part-time income during your years. Golden.
Keep working to increase your retirement income
The most obvious solution to anxiety about longevity risk and your retirement savings is to keep working. Each paycheck represents two weeks added to your retirement fund rather than subtracted.
Many Americans have come to this conclusion. According to a 2018 Gallup Poll, American workers say they expect to retire at 66, up from 60 in 1995. That’s a pretty dramatic increase. It is not realistic either. While Americans say they plan to work later in life, it is not the plan of American companies, nor even the fate, that they have for them.
The high-income 50 and 60-year-olds are an easy target for cost cutters, and it’s very difficult to predict if, or when, you might be forced to stop working full-time due to a disability. The Employee Benefits Research Institute find that the actual median retirement age is 62 and that around half of workers end up retiring earlier than expected. So the plan to just keep working, while admirable, is not realistic for many people.
Maximize Social Security to Increase Your Retirement Income
The second most obvious solution to outliving your savings is to postpone Social Security for as long as possible.
“I always tell people if you are worried about your income, especially if you are in good health, delay getting Social Security until age 70,” said Carolyn McClanahan, CFP, physician and planning expert. retirement.
Eligible Americans can apply for Social Security benefits from age 62 to age 70. Retirees generally have a lot to gain – up to 8% per year in additional benefits – by delaying their claim for Social Security benefits for as long as possible. That said, individual circumstances can affect these calculations, so it is best to consult an expert.
Make tax-efficient retirement savings withdrawals
For Americans with a decent-sized retirement fund, there are complicated calculations to consider when it comes to withdrawing, and mistakes can be costly. McClanahan says many savers mistakenly think they better leave their tax advantage 401 (k) or IRA savings intact during early retirement and living instead on taxable savings. This can be a big mistake.
“If you’re in a 0% or 10% tax bracket, it’s crazy to do that,” she said. Once you start claiming Social Security and demanded distributions from your retirement plans, you can very quickly find yourself in higher tax brackets so Uncle Sam gets a bigger slice. distributions in the future. Taking 401k or IRA distributions to make full use of the 0% to 12% tax brackets once you reach age 60 will save significantly on taxes in the long run.
“Some people say, ‘Oh, I owed no tax, and I’ll say,’ Oh, it’s sad, you lost all those deductions, ‘she said. Take advantage of those years of low income to withdraw money from these tax-advantaged accounts, she advises. Again, there are many factors that dictate how best to spend your taxable, tax-efficient, and non-taxable savings, so it’s worth the money to hire an expert. You don’t want to spend your money paying Uncle Sam unnecessarily while you retire.
Reduce your expenses to increase your retirement income
The 4% rule is a guide to understanding how much of your retirement savings you can withdraw each year, but many financial planners see it more as financial folklore than a solid guideline.
Retirees can’t really control important events that impact longevity risk, like property tax increases or serious health issues. But they can control how much they spend, and it might be wise to consider a radical lifestyle change that cuts spending to slow the loss of retirement savings.
Moving to a cheaper area with cheaper entertainment costs and lower property taxes can make a huge difference. The same goes for reducing the size of a house and pocketing the difference. It’s okay to spend more in the early years of retirement on fun items like travel or a second home, but it will be a lot less fun if it increases longevity risk anxiety later on.
Increase your retirement income with Gig Work
Perhaps the best way to increase your retirement savings is to earn more money. Every dollar earned and saved at age 65 could be worth $ 4 at age 85. As we said, working full time may not be appetizing or available for many. Fortunately, we live in a golden age of part-time work, started with the advent of the odd-job economy and dramatically accelerated by the pandemic.
“Over the last five or ten years we’ve seen an increase in part-time, freelance and temporary work on a more professional level. There are many more opportunities now than ever before, and since last year the rise of remote working will last a long time, ”said Brie Reynolds, Senior Career Specialist at FlexJobs.com, a dedicated site. to “flexible hiring”.
Many employers who would never have considered remote workers before the pandemic are desperate now that many issues have been resolved. Working together at home brings the double benefit of flexible hours and no travel costs. And while in the past, many home jobs involved tedious data entry or customer service, the opportunities grow quickly.
“One area that we find really attractive to clients is education and tutoring. A much wider variety of subjects are taught now, ”said Reynolds. “From early childhood to lifelong adult education. There is technology, math, and science, and those command a higher rate of pay, ranging from $ 15 to $ 20 an hour at the bottom of the scale all the way to $ 30 to $ 35. time. There are also a lot more part-time gigs than ever before. Reynolds recommended that interested workers search not only by job title, but also by the skills they have in order to maximize opportunities.
A word of warning: just like in the real world, there is ageism in remote working. Legal or not, it’s a reality applicants need to consider, Reynolds noted. In fact, since remote working relies heavily on technology, it’s important for applicants to include a skills section demonstrating familiarity with tools like Zoom and Google Drive, she said.
And there’s another big issue that end-of-life gig workers need to consider: the potential for surprise tax bills.
“A lot of people are doing jobs but don’t understand the tax implications,” McClanahan said. Concert workers typically have to pay self-employment taxes and make estimated tax payments over the course of the year, which can be a big trap for the uninitiated. Older workers may have additional tax concerns. A small increase in income can have a big impact on health insurance premiums, for example. For those with minimal income and who would not otherwise have to pay federal taxes on Social Security payments, a small amount of working together could push them into a taxable income bracket.
“You can work really hard, you make $ 5,000 more, but you might only keep half of that,” after tax, McClanahan warned. Yet, she said, these online situations are unusual. For most people, the work is worth it, she says.
“Don’t be afraid of taxes. Just make sure you understand them, ”she said. “Anytime you find yourself in a situation where you’re going to work and earn an income like this, maybe you’re running it by an accountant. “
Curious about working part-time but don’t know where to start? AARP has a list of the best part-time jobs for retirees.
Read more: The early retirement dilemma: to work or not to work?