For many Americans, the odds of enjoying a longer life are greater than ever before.
And not only are we living to advanced ages, we’re also staying active and healthy well into retirement. That’s great news but it presents a challenge: how are we going to pay for all those years of healthy, vibrant living? Here are five smart moves to make the most of your retirement income:
1. Take advantage of catch-up contributions. While most Americans rely on defined-contribution retirement plans such as a 401(k) to save for retirement, most of us aren’t putting enough into them. The key to building a long-lasting nest egg has always been to save asmuch as you can. If you’re age 50 or older, the IRS allows catch-up contributions to your 401(k) account ($6,000 in 2018) as well as other retirement vehicles. Depending on your age and your account balance, those catch-up contributions could add a much needed boost to your retirement account, especially if returns are good while you accumulate the money. The numbers look even better if your employer provides matching contributions.
2. Delay collecting Social Security. The longer you wait to start drawing Social Security, the more you’ll get in the long run. Waiting to claim until you reach full retirement age—which is 66 or 67, depending on the year you were born—gives you 100% of your benefit. If you claim Social Security before you reach your full retirement age, though, your benefits will be significantly reduced. If you take your benefits when you first become eligible at age 62, for example, you’ll receive just 75% of your full-retirement-age benefit every month for as long as you live. In contrast, if you can wait past full retirement age to take benefits, you can count on additional money each month. According to the Social Security Administration, if you were born in 1943 or later and delay collecting Social Security benefits beyond your retirement age, you’ll see an 8% annual increase each year until age 70.
3. Make the move to a tax-friendly state. Some states will tax virtually any type and amount of retirement income. But seven states have no state income tax at all, and two states tax only dividends and interest. Many other states have retirement-income exemptions. The most generous exclude all retirement income from state tax, while others exempt a certain amount. Check out this Retiree Tax Map to see how each state taxes retirement income. If you’re open to moving, it could be a big boost to your piggy bank.
4. Take advantage of senior discounts. There’s a wide range of discounts available to seniors, including reduced travel rates, deals on dining and entertainment, and lower insurance premiums, to name a few. While not every business offers a senior discount, most seniors overpay for certain services simply because they didn’t know a reduction exists. If you’re unsure if the service provider offers a senior discount, it can pay off to inquire about it. Be sure to check out some of the many websites that post senior deals, such as Senior Discounts and The Senior List.
5. Consider an encore career. The longer you stay in the workforce, the fewer retirement years you’ll have to fund. But continuing to work doesn’t mean you have to stay in the same job. Many would-be retirees instead turn to encore careers, putting their skills to work in a field they may not have considered previously or choosing to pursue a longtime passion. Switching to part-time work is another option. It allows you to have more time for yourself, but you’ll still earn some income to cover expenses and help you avoid dipping into your nest egg. And an encore career gives you the added bonus of feeling more connected and in tune with life, especially if you’re fulfilling a passion.
tgoAbout FAI Wealth Management, Inc.: Located in Columbia, Maryland, FAI focuses on helping clients create the financial future they desire by protecting their wealth, making the most of their assets, and planning for life’s uncertainties. The firm combines fee-only, fiduciary-driven guidance with highly personalized, consultative financial planning and investment services that enable individuals, families, and businesses to navigate complex life transitions. Founded in 1987, FAI currently manages more than $330 million in client assets nationwide. For more information about FAI Wealth Management, please visit the website at http://www.faiwealth.com or call 410.715.9200.