Three steps to higher retirement income
A long time ago in a galaxy far, far away, retirees could live off the interest from their CDs and bonds. A lot has changed since then. With interest rates now at historical lows, retirees are feeling the pinch.
This doesn’t mean retirement is out of reach. It means we need to plan a little smarter and harder.
Here are three ways to boost retirement income:
Reduce your expenses
Make a list of all expenses. Then, line by line, scrutinize each expense. Is there a way to reduce the expense? Can you live without it or on a smaller scale? Cable bills, cellphone bills, subscription services — all of these add up.
Other expenses are not so obvious. Cash allowances to adult children are a common budget leak. Retired parents need to have a heart-to-heart with their adult children on how their gifts could potentially negatively impact Mom and Dad’s retirement.
Also, review and request insurance proposals for health, home and auto. Seek out new insurance vendors with better offers.
Or, if it makes sense, try increasing the deductible. Increasing deductibles can save you money on premiums. (This assumes you have the cash to meet the higher deductible when you file an insurance claim.)
If you are paying for life insurance, is that still sensible? If the mortgage is paid off and the kids are out of college, perhaps reallocating premium dollars to long-term care insurance might make more sense.
Find ways to reduce your taxes
Scour your income tax returns for leakage. Are you offsetting income with losses? Taxpayers can use $3,000 of investment losses — if a stock or mutual fund lost money — against ordinary income.
If you give to charity, are you giving in the most tax favorable way? Donating a high-flying stock may make more sense than giving cash. Donating stock to a qualified charity gets you out of the stock position without incurring taxes from selling. This way, your cash, which you would have donated, is instead preserved for your living expenses.
For those with consulting or self-employment income, are you saving in a tax-favorable retirement account? Contributions to a Self-employed (SEP) IRA are tax-deductible, reducing your taxable income and increasing savings for future retirement needs.
Focus on total portfolio income
Many retirees have interest and dividends reinvested back into the portfolio. Instead, try having all portfolio income paid out to you in a weekly check or a wire to your bank account.
The advantage is you never touch the principal. The downside is the portfolio may not grow as much as if dividends were reinvested. That is a trade-off. Many retirees prefer to take the income instead of touching principal.
The key to all of this is to understand that the old ways of retirement income planning — company-provided pensions, high-interest CDs or postponed retirement — are unfortunately not as available as they used to be.
If you are feeling uncertain about your retirement income plan, speak with a qualified, experienced financial adviser. Sometimes the answers are right in front of clients. They just need someone to help point them out.
© 2020 The Kiplinger Washington Editors, Inc. Distributed by Tribune Content Agency, LLC.