Give Yourself a Pay Raise in Retirement
The right income plan can boost your income in retirement while limiting your risk.
You are now subscribed
Your newsletter sign-up was successful
Want to add more newsletters?
Delivered daily
Kiplinger Today
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more delivered daily. Smart money moves start here.
Sent five days a week
Kiplinger A Step Ahead
Get practical help to make better financial decisions in your everyday life, from spending to savings on top deals.
Delivered daily
Kiplinger Closing Bell
Get today's biggest financial and investing headlines delivered to your inbox every day the U.S. stock market is open.
Sent twice a week
Kiplinger Adviser Intel
Financial pros across the country share best practices and fresh tactics to preserve and grow your wealth.
Delivered weekly
Kiplinger Tax Tips
Trim your federal and state tax bills with practical tax-planning and tax-cutting strategies.
Sent twice a week
Kiplinger Retirement Tips
Your twice-a-week guide to planning and enjoying a financially secure and richly rewarding retirement
Sent bimonthly.
Kiplinger Adviser Angle
Insights for advisers, wealth managers and other financial professionals.
Sent twice a week
Kiplinger Investing Weekly
Your twice-a-week roundup of promising stocks, funds, companies and industries you should consider, ones you should avoid, and why.
Sent weekly for six weeks
Kiplinger Invest for Retirement
Your step-by-step six-part series on how to invest for retirement, from devising a successful strategy to exactly which investments to choose.
Because inflation erodes purchasing power, it’s painful for just about everyone. But it can be especially challenging if you’re a retiree whose budget is based on a fixed income.
Remember: Retirees can’t count on getting pay raises the way those who are still working typically can.
In retirement, you’re creating your own “paycheck” — usually from Social Security benefits; maybe a pension or two; and your savings, investment and retirement accounts. If the rate of inflation outpaces that paycheck — even if inflation grows at just 2% a year — you could be looking at a shortfall down the road. And any shortfall could affect the retirement lifestyle you have planned, or the legacy you hoped to leave behind.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
That’s a potential problem for boomers and the generations behind them, who generally have made it clear that — unlike their parents and grandparents — they don’t necessarily plan to cut back on their spending when they retire.
So, what can you do? If, like many people, you fear running out of money in retirement (due to inflation or any other cause), you can make it a goal to build a more robust income plan, one that increases your paycheck over time without putting your retirement at risk.
Here are three steps that can help get you there:
1. First, get a risk assessment.
If you’re wondering about the strength of your current plan, a risk assessment can help you analyze what you have, why you have it and what you might need to change to get where you want to be. A financial adviser can use software to stress test your portfolio and analyze how it might hold up under various scenarios — whether it’s an overheated economy with spiking prices or a major market downturn. An assessment also can determine whether your asset allocation matches your true risk tolerance, and not just a one-word label like “conservative,” “moderate” or “aggressive.”
2. Next, evaluate retirement income sources and potential opportunities.
The aim here is to have an income level that supports the retirement lifestyle you desire and also accounts for life’s what-ifs, such as the death of a spouse, a health emergency or the need for long-term care. Some questions to ask at this stage of your planning include:
- How much money will you need each month or year in retirement? The budget you’re using today will offer some answers, but your goals for the future also will be an important part of this conversation.
- What income streams can you count on to pay for that lifestyle? If you haven’t yet applied for your Social Security benefits, you’ll want to carefully consider the claiming options available and assess how they apply to your situation. The same is true if you’ll receive a pension, especially if you’re offered a lump sum payout.
- Is there a gap between the income your current plan provides and what you’ll need for a long, happy retirement? If so, how can you securely fill that gap? This may take a combination of investment strategies, including using stocks that pass through increased earnings in the form of dividends and/or fixed-index annuities with increasing income options. The right kind of life insurance could also help you stay on track with your goals.
3. Finally, assess the impact taxes can have on your future.
You may have heard the saying, “It’s not what you earn, it’s what you keep.” That’s what this step is all about. By reducing your taxable income, you can effectively increase the amount of money that’s left for you to spend or pass on to your loved ones. Some things to consider when you’re looking at current and future taxes might include:
- Would a Roth conversion make sense for you? There is no age limit for a Roth IRA conversion, but the pros and cons of this strategy may differ based on your age, your goals and if you plan to leave the money to your heirs.
- What are the benefits of a properly funded indexed universal life policy (IUL)? Using an IUL as a tax-free income stream — while keeping the death benefit in place for your heirs — can be complicated, but it’s a strategy that’s worth researching. A financial adviser who is a fiduciary should be able to walk you through the process.
- What about a charitable remainder trust? Charitable remainder trusts allow donors to continue receiving income from investments they donate to a favorite charity while also getting a tax deduction. An attorney or financial adviser can help you break down the pros and cons of the two types — a charitable remainder unitrust (CRUT) or a charitable remainder annuity trust (CRAT) — depending on your goals.
- How can you know what the future holds for tax policy and rates? You can’t. Everyone’s situation is different, and today’s tax and retirement environment is complex. Tax thresholds, deductions and credits often change, and these changes can push taxpayers into a higher tax bracket without their even realizing it. One thing we do know, though, is that the low tax rates we’re currently enjoying won’t last forever, so it’s important to prepare for what’s next.
Keep in mind that your retirement (or your spouse’s) could last two decades or more, which means the U.S. economy likely will cycle through several ups and downs. By building a plan that protects your savings, keeps your taxes as low as possible, and is built to maximize your income streams now and decades from now, you’ll be better prepared for whatever comes next.
Kim Franke-Folstad contributed to this article.
The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.
-
The Cost of Leaving Your Money in a Low-Rate AccountWhy parking your cash in low-yield accounts could be costing you, and smarter alternatives that preserve liquidity while boosting returns.
-
I want to sell our beach house to retire now, but my wife wants to keep it.I want to sell the $610K vacation home and retire now, but my wife envisions a beach retirement in 8 years. We asked financial advisers to weigh in.
-
How to Add a Pet Trust to Your Estate PlanAdding a pet trust to your estate plan can ensure your pets are properly looked after when you're no longer able to care for them. This is how to go about it.
-
How to Add a Pet Trust to Your Estate Plan: Don't Leave Your Best Friend to Chance
Adding a pet trust to your estate plan can ensure your pets are properly looked after when you're no longer able to care for them. This is how to go about it.
-
Want to Avoid Leaving Chaos in Your Wake? Don't Leave Behind an Outdated Estate PlanAn outdated or incomplete estate plan could cause confusion for those handling your affairs at a difficult time. This guide highlights what to update and when.
-
I'm a Financial Adviser: This Is Why I Became an Advocate for Fee-Only Financial AdviceCan financial advisers who earn commissions on product sales give clients the best advice? For one professional, changing track was the clear choice.
-
I Met With 100-Plus Advisers to Develop This Road Map for Adopting AIFor financial advisers eager to embrace AI but unsure where to start, this road map will help you integrate the right tools and safeguards into your work.
-
The Referral Revolution: How to Grow Your Business With TrustYou can attract ideal clients by focusing on value and leveraging your current relationships to create a referral-based practice.
-
This Is How You Can Land a Job You'll Love"Work How You Are Wired" leads job seekers on a journey of self-discovery that could help them snag the job of their dreams.
-
65 or Older? Cut Your Tax Bill Before the Clock Runs OutThanks to the OBBBA, you may be able to trim your tax bill by as much as $14,000. But you'll need to act soon, as not all of the provisions are permanent.
-
The Key to a Successful Transition When Selling Your Business: Start the Process Sooner Than You Think You Need ToWay before selling your business, you can align tax strategy, estate planning, family priorities and investment decisions to create flexibility.
