Newly Retired? Here Are 3 Easy Income Strategies
So, you're newly retired or almost there and while smart planning along the way has left you in good shape financially, you've been thinking more about how to make your retirement income last. You may even be considering ways to earn some additional income to pay for things like long-term care, gifts to your favorite charity, or that extended Southeast Asian tour on your bucket list.
No matter where you find yourself, now that you're settling into retirement, it's time to take a closer look at your income strategy. Here are three simple ways to make your hard-earned investments last as long as possible — and even grow to fit your evolving retirement needs.
1. Reset Your Income and Investment Goals
Along with your retirement planning, you may have already made estimates of the income you'll need for the retirement lifestyle you want. But now that you've started living the life instead of just dreaming about it, consider whether those goals need adjusting.
Just as it was with your pre-retirement investing, a balanced approach is essential. A diversified portfolio, with the right mix of cash, high-quality bonds, and stocks helps with diversification. However, keep in mind that there is no guarantee that your portfolio won't lose value. During a down market, consider cutting discretionary expenses. Your financial advisor can help you find the right balance between security and growth.
2. Budget Your Spending around the Required Minimum Distributions
As the average life expectancy continues to rise, some financial planners are rethinking the rules around spending from retirement accounts. Instead of relying on the traditional 4 percent rule — limiting annual investment account withdrawals to 4 percent of the balance — some experts suggest lowering the maximum a point or so, or using the IRS' required minimum distributions, which are based on a life expectancy table, as your primary guide. That way you can stretch your money out a little longer.
Even if you still have a few years before you turn 70 ½ and required minimum distributions (RMDs) kick in for you, it's not too early to develop a plan that will keep you in compliance with IRS rules and out of tax trouble. Failure to take your RMD in any given year can subject you to a 50 percent excise tax on the amount not distributed as required. But taking too much can move you into a higher tax bracket. Consider whether making a few gradual withdrawals now — provided you're old enough to do so without penalty — might lower your future RMDs and tax obligations. Be sure to meet with your tax specialist.
3. Let Your Interests Grow Your Income
Wise investment and spending strategies will keep your existing retirement savings from eroding too quickly, but you'll have even more financial security if you can find additional sources of income.
A part-time job or a series of short-term posts might be a good option for you. Keep in mind that more income could bring you into a higher tax bracket. Now that you've joined the ranks of the newly retired you're free to make your own schedule and work as much or as little as you like.
You may find your best income-earning resource by looking in the mirror. Think about turning some of your professional knowledge or recreational passions into a post-retirement gig. Here are some part-time jobs you may want to consider:
- Teaching a course at a local college
- Freelance writing in your field of expertise
- Starting your own business — perhaps a catering company or pet-sitting service
- Renting out your home while visiting family
While you're making plans to travel — exploring new hobbies and enjoying more time with family and friends during your retirement — don't forget to map out a strategy for having enough income to do those things. Customizing your income goals, choosing a spending strategy that stretches your savings, and looking for creative ways to make more money will set you on the right path.