The Retirement Income Strategies Advisors Say Can Add $5,000 or More Annually
Written by
Jordan Rosenfeld
Edited by
Rebekah Evans
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Many retirees assume the only way to increase retirement income is to save more before leaving the workforce.
But financial advisors say that how you structure withdrawals, taxes and Social Security timing can have just as big an 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.
Delaying Social Security
One of the easiest ways to increase retirement income is delaying Social Security benefits, which can increase the guaranteed income retirees receive each year.
This is an especially smart move for people who have less than $500,000 in retirement savings, according to Jeremy Keil, certified financial planner (CFP), chartered financial analyst (CFA) at Keil Financial Partners and author of the bestseller “Retire Today: Create Your Retirement Master Plan in 5 Simple Steps.” “If you file at 70, instead of 62, for Social Security your benefit will be 77% higher,” he said.
Indeed, delaying Social Security increases benefits roughly 8% per year between full retirement age and age 70, added Christopher Stroup, CFP and owner of Silicon Beach Financial. “For retirees with longevity in their family or sufficient savings to bridge the gap, that higher guaranteed benefit can add thousands annually while also providing stronger protection against inflation and longevity risk.”
Coordinating Withdrawals Across Accounts
Retirees often hold assets across multiple account types — taxable brokerage accounts, traditional retirement accounts and Roth accounts. Strategically coordinating withdrawals across these “tax buckets” can significantly increase net income, according to Julian Morris, CFP and principal at Concierge Wealth Management. Morris said the right withdrawal approach can help retirees “manage their tax bracket and keep more control of the taxes they pay and by that factor more of the income that they withdraw.”
Even modest tax savings and avoiding unnecessary bracket creep or Medicare surcharges can easily translate into several thousand dollars of additional spendable income per year, he added.
Strategic Roth Conversions Can Reduce Lifetime Taxes
Another smart strategy is converting portions of tax-deferred retirement accounts to Roth accounts during lower-income years before required distributions begin. This “may reduce future tax brackets and Medicare surcharges,” Stroup said.
Small Adjustments Early in Retirement Can Pay Off for Years
For many retirees, small strategic decisions early in retirement can compound into significant income over time. Keil said one strategy is to intentionally draw down your portfolio for the first few years of retirement, allowing your Social Security to be delayed and grow.
This approach can give your portfolio a better chance to grow, as well, giving you “more income and higher money left over.”
In fact, Stroup said that rather than seeking a “single magic strategy,” the biggest income improvements usually come from “coordinating Social Security timing, tax-efficient withdrawals and portfolio withdrawals together rather than separately.”
Sometimes the biggest returns come from the simplest moves.
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