Long ago, in a galaxy far, far away, retirees could live off interest on their CDs and bonds. Much has changed since then. With interest rates now at historic lows, retirees are feeling the pinch.
This does not mean that retirement is out of reach. Only we have to plan a little smarter and harder.
Here are three examples of how to increase retirement income.
My clients make a list of all the expenses. Line by line, each expense is then scrutinized. I ask them, is there a way to cut expenses? Can you live without or on a smaller scale? Cable bills, cell phone bills, subscription services, it all adds up.
The other expenses are not so obvious. Cash allowances for adult children are a common budget drain. Retired parents should have a heart-to-heart discussion with their adult children about how their gifts could potentially have a negative impact on Mom and Dad’s retirement.
Plus, review and apply for health, home and auto insurance quotes. I usually find new insurance providers with better deals. Or, if that makes sense, try increasing the deductible. Increasing deductibles can save you money on premiums. This assumes that you have the money to cover the highest deductible when you file an insurance claim.
If you’re still paying for life insurance, does it still make sense? If the mortgage is paid off and the kids drop out of college, it might make more sense to reallocate premiums to long-term care insurance.
Search your tax returns for leaks. Do you offset income with losses? Taxpayers can use $ 3,000 in lost investment – if a stock or mutual fund has lost money – against ordinary income. If you donate to charity, are you giving in the most tax-efficient way? Donating high-profile stocks may make more sense than donating money. Donating stock to a qualified charity allows you to exit the stock position without incurring any taxes on the sale. This way, your money, which you would have donated, is instead preserved for your living expenses.
For those who have income from a consultant or self-employed, are you saving in a tax-advantaged retirement account? Contributions to an Independent IRA (SEP) are tax deductible, reducing your taxable income and increasing savings for future retirement needs.
Many retirees see interest and dividends reinvested in the portfolio. Instead, try to get paid all of the income from the wallet. Each week, my retired clients receive a physical check or wire transfer to their bank account from the interest and dividends generated by their portfolios. The advantage is that customers never touch their capital. The downside is that the portfolio might not grow as much if dividends were reinvested. It is a compromise. Many retirees prefer to take the income instead of the lump sum.
The key to all of this to understand is that the old way of planning retirement income – company-provided pensions, high-interest CDs, or longer work – is unfortunately not as reliable as it used to be. Today’s retirees need to work a little smarter and harder.
If you are unsure of your retirement income plan, I encourage you to consult a qualified and experienced financial advisor. Sometimes the answers are right in front of customers, they just need someone to help them point them out.