©Shutterstock.com
Commitment to our readers
The GOBankingRates editorial team is committed to providing you with unbiased reviews and information. We use data-driven methods to evaluate financial products and services – our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our review methodology for products and services.
20 years
help you get rich
trusted by
millions of readers
Many retirees believe that the only way to increase retirement income is to save more before leaving the workforce.
But financial advisors say how you structure withdrawal, tax and Social Security timing can have an equally big impact. Here they share planning strategies that can potentially add thousands of dollars to a retiree’s annual income – often without taking on additional investment risk.
Social Security Delay
One of the easiest ways to increase retirement income is to delay Social Security benefits, which can increase the guaranteed income retirees receive each year.
According to Jeremy Keel, certified financial planner (CFP), chartered financial analyst (CFA), this is an especially smart move for people who have less than $500,000 in retirement savings. Keil Financial Partners and author of the bestseller “Retire Today: Create Your Retirement Master Plan in 5 Simple Steps.” “If you file for Social Security at 70 instead of 62, your benefits will be 77% higher,” he said.
In fact, delaying Social Security increases benefits by about 8% per year between full retirement age and age 70, said Christopher Stroup, CFP and owner of silicon beach financial. “For retirees who have long-lived families or enough savings to bridge the gap, higher guaranteed benefits could add thousands more annually, while also providing stronger protection against inflation and longevity risk.”
Coordinating withdrawals across accounts
Retirees often hold assets in several types of accounts – taxable brokerage accounts, traditional retirement accounts and Roth accounts. According to Julian Morris, CFP and Principal, strategically coordinated withdrawals into these “tax buckets” can significantly increase net income. concierge wealth management. Morris said the right withdrawal approach can help retirees “manage their tax bracket and have more control over the taxes they pay and factor more income into what they withdraw.”
Even modest tax savings and avoiding unnecessary bracket creep or Medicare surcharges can easily result in several thousand dollars of additional disposable income per year, he said.
Strategic Roth conversions can reduce lifetime taxes
Another smart strategy is to convert portions of tax-deferred retirement accounts to Roth accounts during low-income years before required distributions begin. “This could reduce future tax brackets and Medicare surcharges,” Stroup said.
Small adjustments early in retirement can prove beneficial over the years
For many retirees, small strategic decisions early in retirement can turn into significant income over time. Keil said one strategy is to intentionally shrink your portfolio for the first few years of retirement, thereby delaying and increasing your Social Security.
This approach can give your portfolio a better chance to grow, as well as give you “more income and save more money.”
In fact, Stroup said that rather than looking for a “single magical strategy,” the biggest improvements in income typically come from “coordinating Social Security timing, tax-efficient withdrawals, and portfolio withdrawals together rather than separately.”
Sometimes the biggest returns come from the simplest steps.