Are you getting close to retirement and looking for ways to boost your income? Or better yet, are you still decades away from retirement and wondering how you can provide the income you need once you retire?
According to many experts, you'll need about 80% of your pre-retirement income in order to maintain your lifestyle and have a comfortable retirement. With that in mind, here are three suggestions on how to maximize your retirement income.
Matt Frankel: One way to increase your income in retirement is to save as much as possible in your retirement accounts. And while this may seem pretty obvious, many people underestimate the impact of increasing their savings. Even if you are pretty close to retirement age, a little extra can make a big difference.
For the 2015 tax year, you can contribute up to $5,500 to your IRA account, and an extra $1,000 "catch-up" contribution is allowed for savers over the age of 50. If you have an IRA at work, the limits are more generous, with a maximum elective contribution of $18,000, and an extra $6,000 allowed for those over 50.
For an extreme example, let's say that you're 50 and don't have any retirement savings yet. By simply contributing the maximum allowed to an IRA ($6,500 per year), you could retire at 65 with nearly $200,000 in savings, assuming 8% annual average returns -- less than the S&P 500's historical average. And, if you can wait until 70, your account could build to more than $325,000. So, while this may not be enough for a "cushy" retirement, it's a big improvement from nothing. It's not too late to get started.
Younger people have more time to build up their returns, so it's even more crucial to start saving early and often. There are plenty of other ways to increase your income in retirement, but simply saving and investing as much money as you can.
Dan Caplinger: The key to boosting your retirement income is to put time on your side by saving as much as you can, as early as you can. When you look at how the S&P 500 (SNPINDEX:^GSPC) has performed over the past 20 years, you'll find that the cumulative return on the index including dividends has been more than 500%. If you're 55 right now, that means you'll have to save $600 now to catch up with someone your age who saved just $100 when they were 35 years old.
As Matt describes, tax-favored retirement accounts like 401(k) plans at work and IRAs give you a great way of saving for retirement in a way that will give you great tax benefits, both now and down the road. Yet as great as it is for people who can contribute the maximum amounts to their retirement accounts, many people simply can't. Even if you won't max out your contributions each and every year, just finding ways to increase your retirement savings by small amounts adds up over time. Even modest savings when you're young can put a big dent in your savings needs down the road, allowing you to divert some of your money in middle age toward more immediate needs, like putting kids through college without jeopardizing your own retirement.
Dan Dzombak: One way to boost your retirement income is to prepare now so you can wait to take Social Security.
Every American can claim social security benefits based on their top 35 years of earnings. These come as monthly payments, and for 2015, the average monthly Social Security benefit will be $1,328, which adds up to $15,936 for the full year. Under current rules, you get 100% of your payments owed each month if you start taking Social Security at the full retirement age, which is 66.
Compared to taking Social Security at your full retirement age, every year you wait to take Social Security, until age 70, boosts your payments by 8% a year to a max of 132% of what you can claim at age 66.
On the flip side, every year you take your Social Security benefits early, the earliest allowed being age 62, your payments actually drop by 5%-7% per year. As many people have no retirement savings, 62 remains the most prevalent age to take Social Security, but if you expect to live past 80, you may be better off taking Social Security later.
With a little planning and doing your own breakeven analysis of Social Security benefits, you can figure out the best time to boost your income with Social Security benefits.
Dan Caplinger has no position in any stocks mentioned. Dan Dzombak has no position in any stocks mentioned. Matthew Frankel has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.