Four Strategies To Maximize Your Retirement Income
Joel Johnson, CONTRIBUTOR. From www.forbes.com – Opinions expressed by Forbes Contributors are their own.
The main concern that people have in or near retirement is running out of money. There are many strategies people can employ to ensure a successful retirement. Here are four of the strategies you can take to maximize your retirement income.
Strategy #1- Lower your taxes.
Instead of looking at your investments first, begin by taking a look at your taxes and figure out the best way to minimize them. This is not “cheating”, but rather, making sure you are not paying more than you need to at tax time. For example, many people own mutual funds that unbeknownst to them, spin off distributions which cause them to pay taxes. By simply changing your portfolio’s funds to more tax efficient funds, these distributions won’t hit your taxes and negatively impact your bottom line, leaving more money in your retirement fund.
Strategy #2 – Invest with a bias towards Income-Producing Securities and Products
When we think retirement income it is important to think along the lines of pension funds. Pension funds are ideal for investing to produce income and preserve principal. When planning for a successful retirement, you ideally want to move from growth-type investments (a good choice for people in their 30's and 40's) to income producing investments (such as preferred stocks, bonds). Income producing assets produce a steady stream of income, and while there is some opportunity for growth, you have peace of mind with your income, should the stock market take a dip.
Strategy #3- Protect against inflation
This is by far the biggest risk that many people face in retirement! Consider this: If you retire today at age 65, there is a high probability you will live to age 90. This means you may need to triple your monthly income, just to keep up with inflation. Many people do not plan for inflation or an increased life span, thinking that the money they have saved will be more than adequate. Consider planning for retirement as giving yourself a ‘yearly raise.’
Strategy # 4 – Get a Retirement Income Plan
The first thing to do when contemplating retirement is to develop a retirement income plan. This is where you need to envision how you see your retirement and what your savings will need to be in order to satisfy the lifestyle you desire. Many retirees spend the first ten years of their retirement traveling and taking advantage of their hobbies. Some retirees will also want to have the ability to help pay for their grandchildren’s education or help their own child purchase a home. These things all cost money and the pre-retiree will need to factor that into their retirement plan.
Figuring out how much money you will need to retire comfortably and whether you are on track (i.e. are you saving enough?) are two critical questions to ask in the planning process. You might want to consider joining forces with a trusted financial advisor who can deliver a complete picture of your assets and assist you with your retirement plan.
With these four strategies in place, you can maximize your retirement income and ensure that your retirement is designed the way you want it to be!