personal finance

Boost Your Retirement Income in 3 Steps

Low interest rates are a big challenge for retirees today. To help cope, try these three strategies.

A long time ago in a galaxy far, far away, retirees could live off the interest from their CDs and bonds. A lot has changed since then. With interest rates now at historical lows, retirees are feeling the pinch.

This doesn’t mean retirement is out of reach. Only we need to plan a little smarter and harder.

Here are three examples of how to boost retirement income.

1. Start with reducing your expenses.

My clients make a list of all expenses. Line by line, each expense is then scrutinized. I ask them, is there a way to reduce the expense? Can you live without it or on a smaller scale? Cable bills, cellphone bills, subscription services, all of these add up.

Other expenses are not so obvious. Cash allowances to adult children are a common budget leak. Retired parents need to have a heart-to-heart with their adult children on how their gifts could potentially negatively impact Mom and Dad’s retirement.

Also, review and request insurance proposals for health, home and auto. I usually find new insurance vendors with better offers. Or, if it makes sense, try increasing the deductible. Increasing deductibles can save you money on premiums. This assumes you have the cash to meet the higher deductible when you file an insurance claim.

If you are still paying for life insurance, does that still make sense? If the mortgage is paid off and kids out of college, perhaps reallocating premium dollars to long-term care insurance might make more sense.

2. Next, find ways to reduce your taxes.

Scour your income tax returns for leakage. Are you offsetting income with losses? Taxpayers can use $3,000 of investment losses – if a stock or mutual fund lost money – against ordinary income. If you give to charity, are you giving in the most tax favorable way? Donating a high-flying stock may make more sense than giving cash. Donating stock to a qualified charity gets you out of the stock position without incurring taxes from selling. This way your cash, which you would have donated, is instead preserved for your living expenses.

For those with consulting or self-employment income, are you saving in a tax-favorable retirement account? Contributions to a Self-employed (SEP) IRA are tax-deductible, reducing your taxable income and increasing savings for future retirement needs.

3. Focus on total portfolio income.

Many retirees have interest and dividends reinvested back into the portfolio. Instead, try having all portfolio income paid out to you. Each week my retired clients receive a physical check or a wire to their bank account from the interest and dividends generated from their portfolios. The advantage is clients never touch their principal. The downside is the portfolio may not grow as much if dividends were reinvested. That is a trade-off. Many retirees prefer to take the income instead of touching principal.

The key to all of this to understand is that the old way of retirement income planning – company-provided pensions, high-interest CDs or working longer – is unfortunately not as reliable as it used to be. Today, retirees must work a little smarter and harder.

If you are feeling uncertain about your retirement income plan, I encourage you to speak with a qualified, experienced financial adviser. Sometimes the answers are right in front of clients, they just need someone to help point them out.

About the Author

Michael Aloi, CFP®

CFP®, Summit Financial, LLC

Michael Aloi is a CERTIFIED FINANCIAL PLANNER™ Practitioner and Accredited Wealth Management Advisor℠ with Summit Financial, LLC.  With 17 years of experience, Michael specializes in working with executives, professionals and retirees. Since he joined Summit Financial, LLC, Michael has built a process that emphasizes the integration of various facets of financial planning. Supported by a team of in-house estate and income tax specialists, Michael offers his clients coordinated solutions to scattered problems.

Investment advisory and financial planning services are offered through Summit Financial, LLC, an SEC Registered Investment Adviser, 4 Campus Drive, Parsippany, NJ 07054. Tel. 973-285-3600 Fax. 973-285-3666. This material is for your information and guidance and is not intended as legal or tax advice. Clients should make all decisions regarding the tax and legal implications of their investments and plans after consulting with their independent tax or legal advisers. Individual investor portfolios must be constructed based on the individual’s financial resources, investment goals, risk tolerance, investment time horizon, tax situation and other relevant factors. The views and opinions expressed in this article are solely those of the author and should not be attributed to Summit Financial LLC. The Summit financial planning design team admitted attorneys and/or CPAs, who act exclusively in a non-representative capacity with respect to Summit’s clients. Neither they nor Summit provide tax or legal advice to clients.  Any tax statements contained herein were not intended or written to be used, and cannot be used, for the purpose of avoiding U.S. federal, state or local taxes.

Most Popular

Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
How to Calculate the Break-Even Age for Taking Social Security
social security

How to Calculate the Break-Even Age for Taking Social Security

When it comes to maximizing your Social Security benefits, there are many elements to consider. One factor that can be especially enlightening is your…
August 30, 2021
Spend Without Worry in Retirement
Financial Planning

Spend Without Worry in Retirement

Fears of running out of money prevent many retirees from tapping the nest egg they’ve worked a lifetime to save. With these strategies, you can genera…
August 30, 2021

Recommended

How Exactly Do You Stress-Test Your Financial Plan?
retirement planning

How Exactly Do You Stress-Test Your Financial Plan?

Some tasks are not good for DIYers, and stress-testing your portfolio is probably one of them. Because individuals don’t have access to the same tools…
September 18, 2021
5 Charitable Surprises about High-Net-Worth Families
Charity

5 Charitable Surprises about High-Net-Worth Families

They might be out of the spotlight, but smaller family foundations are stepping up their giving in this time of need.
September 17, 2021
5 Key Points to Consider Before You Claim Social Security
social security

5 Key Points to Consider Before You Claim Social Security

The big decision every retiree has to make is when to start taking their Social Security benefits. Here are five things to think about as you weigh yo…
September 16, 2021
I Have a Financial Adviser. Is It Time for My Adult Children to Get One, Too?
personal finance

I Have a Financial Adviser. Is It Time for My Adult Children to Get One, Too?

When you’re young and broke, there’s not a lot of need for a financial adviser. But there comes a time when all that changes. Here are four tipping po…
September 16, 2021