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12 ways you can get more money in retirement

The Motley Fool logo The Motley Fool 12/29/2018 Selena Maranjian

Most of us would like more money -- now. For many people, though, retirement is when they will really need more money, since so few have saved adequate sums to support themselves in the future. For example, about 24% of workers report having less than $1,000 saved for retirement, and a whopping 55% have less than $50,000, per the 2017 Retirement Confidence Survey.

Those statistics are the bad news. The good news is that there are lots of ways to increase your retirement income and strengthen your future financial security. Here's a look at 12 of them:

No. 1: Pay off debts

For starters, you can have more money in the future if you get rid of debt obligations as soon as possible. Having a lot of debt now will keep you from being able to save effectively. If you're carrying, say, $8,000 in debt and you're socked with a 25% annual interest rate, that's a whopping $2,000 in interest!

It may not be easy, but you can pay off that debt. One simple strategy to try is negotiating with your credit card company. Call and ask if it will lower your interest rate. Surprisingly, many lenders will agree to do so in order to keep you around if you've been a loyal and good customer. As you pay down your debt, try to tackle your highest-interest-rate debt first because it costs you the most.

No. 2: Increase your saving and investing -- now

Next, start saving and investing more -- and as soon as possible. To appreciate the power of taking this action, imagine that you're saving $1,000 per month ($12,000 annually) for retirement. Here's how much you might accumulate if, instead, you saved $1,200 per month ($14,400 annually) or $1,500 per month ($18,000 annually):

Growing at 8% for

$12,000 Invested Annually

$14,400 Invested Annually

$18,000 Invested Annually

3 years

$42,073

$50,488

$63,110

5 years

$76,031

$91,237

$114,047

10 years

$187,746

$225,295

$281,619

12 years

$245,944

$295,132

$368,915

15 years

$351,891

$422,270

$527,837

20 years

$593,075

$711,690

$889,613

Source: Calculations by author.

Even if you're only a decade from retirement, boosting your savings from $1,000 per month to $1,500 per month might net you close to $94,000 more by retirement.

Related video: Why you shouldn't count on $1 million to get you through retirement anymore (provided by GoBankingRates)

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No. 3: Work a few more years before retiring

You may not be eager to work longer than you planned to, but it could really pay off. Every additional year you work is a year that you're not tapping your nest egg and a year in which you can aggressively pay down debt or further fill your retirement coffers. (Ideally, you'll also be maintaining employer-sponsored health insurance, saving you additional dollars.) If you've saved $400,000 for retirement, for example, and you can let that grow for two more years at an average annual growth rate of 8%, you'll boost the total by more than $66,000.

No. 4: Work a little -- in retirement

You might find it worthwhile to work a little in retirement, too. Working just 12 hours per week at $10 per hour will generate about $500 per month in extra income. If you can work a few more hours or earn a higher wage, you'll collect even more.

A low-stress part-time job on the side can be quite helpful in retirement and also can give your days more structure and regular opportunities for socializing -- things that many people find they really miss when retired.

No. 5: Make the most of retirement accounts

If you're not making good use of tax-advantaged retirement accounts available to you, you may be leaving retirement dollars on the table. The two biggies are IRAs and 401(k)s, which come in traditional and Roth formats.

With a traditional IRA or 401(k), you contribute pre-tax money, reducing your taxable income for the year, and thereby reducing your taxes, too. The money grows in your account, and when you withdraw it in retirement, it's taxed at your ordinary income tax rate at the time -- which is often lower than your current rate. With a Roth IRA or a Roth 401(k), you contribute post-tax money that doesn't reduce your taxable income at all in the contribution year. Here's the kicker, though: Your money grows in the account until you withdraw it in retirement -- tax free.

For 2017, the IRA contribution limit is $5,500 -- plus $1,000 for those 50 or older. For 2019, it grows to $6,000 and $1,000. The limit for 401(k) contributions is much more generous: For 2018, it's $18,500 plus $6,000 for those 50 and older, and for 2019, it rises to $19,000 plus the $6,000.

The table below shows what you might amass by regularly socking away various sums that grow at an annual average rate of 8%.

Growing at 8% for

$5,000 Invested Annually

$10,000 Invested Annually

$15,000 Invested Annually

10 years

$78,227

$156,455

$234,682

15 years

$146,621

$293,243

$439,864

20 years

$247,115

$494,229

$741,344

25 years

$394,772

$789,544

$1.2 million

30 years

$611,729

$1.2 million

$1.8 million

Source: Calculations by author.

No. 6: Include dividends in your portfolio

When you need money in retirement, you might sell off shares of stock from your stock portfolio, but with dividend-paying stocks, you can collect income without having to sell any shares. A $300,000 portfolio, for example, that sports an overall average yield of 4% will generate about $12,000 per year -- that's a very useful $1,000 per month.

Dividend income isn't guaranteed, but you can lower the risk by spreading your money across a bunch of healthy and growing companies. Know, too, that dividend payments tend to be increased over time, and that can help your income keep up with inflation. You don't even have to expertly select the perfect dividend payers. You can enjoy dividend income from broad-market index funds such as the SPDR S&P 500 ETF (SPY), which recently yielded 1.8%. A dividend-focused exchange-traded fund (ETF) can be a fine option, too. The iShares Select Dividend ETF (DVY), for example, recently yielded about 3.5%. Preferred stock is another way to go. The iShares U.S. Preferred Stock ETF (PFF) recently yielded 5.8%.

No. 7: Consider annuities for pension-like income

You may not have a pension, but an annuity or two can provide dependable pension-like income. It's true that some annuities, such as variable annuities and indexed annuities, can be quite problematic, often charging steep fees and sporting restrictive terms. But another kind -- fixed annuities -- are well worth considering. They're much simpler instruments and can start paying you immediately or on a deferred basis.

Below are examples of the kind of income that various people might be able to secure via an immediate fixed annuity in the current economic environment. (You'll generally be offered higher payments when interest rates are higher.)

Person/People

Cost

Monthly Income

Annual Income Equivalent

65-year-old man

$100,000

$570

$6,840

65-year-old woman

$100,000

$544

$6,528

70-year-old man

$100,000

$651

$7,812

70-year-old woman

$100,000

$616

$7,392

65-year-old couple

$200,000

$960

$11,520

70-year-old couple

$200,000

$1,062

$12,744

75-year-old couple

$200,000

$1,225

$14,700

Source: Immediateannuities.com.

A deferred annuity also might be useful, helping you avoid running out of money late in life. It starts to pay you at a future point, such as when you turn a certain age. A 65-year-old man, for example, might spend $100,000 for an annuity that will start paying him $1,359 per month for the rest of his life beginning at age 75.

No. 8: Collect income from interest

Collecting income from interest-paying investments isn't going to be a very powerful strategy in our current low-interest-rate environment. But rates seem to be on the rise, so keep it in mind in the future. A recent CD interest rate of 3% will only deliver $3,000 on a $100,000 investment, but interest rates sometimes can be much higher. Back in 1984, you could invest in a six-month CD paying 12%!

Bonds are an attractive interest-paying option, too, but the safest ones (from the U.S. government) tend to pay modest interest rates, especially in low-interest-rate environments. Note, too, that low interest rates not only offer little income, but they don't keep up with inflation. (Inflation has averaged about 3% over many decades.) Still, if you have a lot of money, you might make this strategy work by buying a variety of bonds or CDs that will mature at different times, generating income over many years.

No. 9: Consider a reverse mortgage

A reverse mortgage also is worth considering as an income-generation strategy for retirement. It's where you get money from a lender, often in the form of monthly (tax-free) payments during your retirement, with your home as the collateral. The loan doesn't have to be paid back until you no longer live in your home (such as when you move into a retirement home or you pass away).

That income may be appealing, but reverse mortgages have some drawbacks, such as requiring your heirs to sell your home unless they can afford to pay off the loan. Still, if you need the income and no one is counting on inheriting your home, this might be a good retirement income strategy for you. Learn a lot more about reverse mortgages before getting one, though.

No. 10: Relocate -- to a less costly home or region

This income-boosting strategy may seem extreme, but it can pay off well and be done in retirement or now. You might just downsize, moving into a smaller home in your current neighborhood or town -- or you could move to a region with lower taxes or a lower cost of living. Either way, you may end up spending less on taxes, insurance, home maintenance, utilities, landscaping, and so on.

The median home value in California, for example, was recently about $409,300, but it was only $161,600 in New Mexico and only $143,600 in South Carolina -- and both states have lower effective property tax rates, too.

No. 11: Borrow against your life insurance policy

If you're thinking out of the box, you might come up with this way to generate income for retirement: Borrow against your life insurance policy if no one is depending on it (for example, if your kids are now grown and financially independent). You need to have "permanent" insurance such as whole life or universal life, and not term life insurance, which generally only lasts as long as you're paying for it. You'll be reducing or wiping out the value of the policy with your withdrawal(s), but if no one really needs the ultimate payout, it can make sense. As a bonus, the income is typically tax-free.

No. 12: Make the most of Social Security

Finally, there's good old Social Security. It may not pay you a fortune -- the average monthly retirement benefit check was recently $1,420, or about $17,000 per year -- but there are ways that you can increase your Social Security benefits. For example, for every year beyond your full retirement age that you delay starting to collect benefits, they'll grow by about 8%. Delay from age 67 to 70 and you'll boost your benefits by 24%, enough to turn a $2,000 monthly check into a $2,480 one.

It's not quite as powerful as it seems, though, because while your checks will be bigger, you'll be collecting a lot fewer of them. When you start collecting won't actually make much difference if you live an average-length life, but if you stand a decent chance of living a long time, bigger checks can be quite welcome. Read up on spousal strategies, too, because the two of you and your other half can boost your total benefits by coordinating when you each start collecting.

You financial future may look a little shaky at the moment, but there are lots of things you can do both before and in retirement that can increase your retirement income. Spend some time thinking about what steps you might take now to strengthen your financial security.

Selena Maranjian has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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