Retirees—and those who are close to retirement—have a right to be skeptical about new ideas to squeeze more income out of their nest egg. Rock-bottom interest rates pinched yields on safe investments, and investor-friendly reforms, such as requiring financial advisers to act in the best interest of their clients, have moved at a glacial pace.
On the plus side, delaying Social Security benefits until age 70 provides more financial benefits than ever before for baby boomers. More-sophisticated strategies for managing portfolio withdrawals and minimizing taxes on those withdrawals can boost your retirement income even more. Even taking on housing debt can net you more money to spend during retirement.
All of this can’t come soon enough for people who are close to or in retirement, many of whom have serious ground to cover after the 2008 financial crisis, despite a recent record bull run in stocks. In a 2015 survey by Voya Financial’s Retirement Research Institute, 65 percent of retirees said they expect to live more than 20 years in retirement, but just 40 percent of those people expect their money to last that long.
“The dominating worry now is [generating] retirement income as baby boomers retire en masse,” says financial adviser Michael Kitces of Pinnacle Advisory Group. “The reality of retirement income is that in today’s environment, holding a bunch of CDs and bonds just doesn’t cut it when yields are still so low.”
No holy grail will turn modest savings into an affluent retirement lifestyle, but you can make four concrete moves that can juice a fatter paycheck from whatever size nest egg that you have.
SOCIAL SECURITY. It’s difficult to overstate the importance of making good decisions about when to claim Social Security benefits, even if you can’t know the key element that affects total lifetime benefits—how long that you’ll live.
“For a lot of Americans, Social Security is the largest financial decision they’re likely to make in their lifetime,” says William Meyer, who founded Social Security Solutions and Retiree Income, which are two companies that provide advisory services and software to claim Social Security benefits and manage retirement-plan withdrawals.
Cut Retirement Expenses by Going Robo
You might know that waiting to file for Social Security benefits until age 70 increases the amount of money that you can collect each month, because the program provides delayed-retirement credits. (No credit exists for delaying after age 70.) What you might not realize is that these delayed-retirement credits rose to 8 percent per year in 2009—their highest point ever. People who retired in 2009 at age 66 began to reap the benefits of those historically high credits in 2013 at age 70.
Baby boomers who hit full retirement age (66 for those born between 1943 and 1954) now through 2020 can boost their monthly checks by a hefty 32 percent—8 percentage points per year from age 66 to age 70—if they delay. The retirement age gradually rises for those who were born after 1954, to age 67. Although the latter group will get the 8 percentage-point annual boost until age 70, they’ll earn the credit for fewer years. So, someone who was born in 1965, for example, would get the credit for only 3 years and, thus, a 24 percent total increase.
Consider a hypothetical example from Retiree Income: Jane is a 61-year-old single woman who has a projected Social Security benefit of $1,500 per month if she started to collect at age 66. If she waited to draw benefits until age 70, she’d receive $1,980 per month.
Another way to understand the value of waiting to draw Social Security benefits is to look at them over time. If Jane were to retire in 2016 at 62, which is the earliest age that she could claim Social Security benefits, she’d receive only $1,125 per month. Her benefits over 30 years, assuming that she lived to be 92, would total $405,000 in today’s dollars. By contrast, if she waited until age 70 to start collecting, she’d receive a total of $522,720 over 22 years—a gain of $117,720.