Though many Americans are working hard to catch up on retirement savings, most of us still have a pretty long way to go. According to Fidelity, the average American has a 401(k) balance of $92,500, while the average IRA balance is $93,700. Now these numbers might sound big, but when you consider the fact that Americans are living longer than ever, that sum might need to last a good 25 years or more -- which leaves the typical retiree with just over $3,700 a year, or $300 a month, in income.
Younger workers who are behind on savings still have a decent chance to catch up. Older workers approaching retirement, on the other hand, less have opportunity. But if you fall into the latter category, fear not. You can still increase your cash flow in retirement if you play your cards right during your remaining working years and make some smart moves shortly thereafter.
Read on to learn how.
1. Work past your full Social Security retirement age
Your Social Security benefits are based on your top 35 years of earnings. Once your base benefit amount is determined, you can collect it in full upon reaching your full retirement age. Now, your full retirement age depends on the year you were born, and for today's workers, it's either 66, 67, or somewhere in between. But one thing you should know is that you're not required to file for Social Security once you reach your full retirement age. In fact, if you delay benefits past that point, you'll increase your payments by 8% a year up until age 70, when the incentive to hold off finally runs out.
So imagine your full retirement age is 66 but you work until 70, thus delaying Social Security for four years. Doing so would increase your monthly payments by 32%. To think about it in terms of actual numbers, holding off those four years would turn a base benefit of $1,600 into $2,112 -- for life.
2. Buy and hold dividend stocks
Some seniors shy away from stocks because of their volatile nature. But while it's a bad idea to house the majority of your money in stocks once you reach a certain age, leaving some of your portfolio in stocks is a good idea, especially if those stocks are ones that pay dividends. While dividends technically aren't a sure thing, if you hold stocks with a strong history of making payments, they'll likely serve as an added source of income for the long haul.
Once you're forced to rely on a fixed income, it's even more critical to live somewhere that lets you maximize your savings. If your neighborhood is on the expensive side, it pays to find a more affordable location to spend your golden years. Keep in mind that there are different factors that determine affordability, from income taxes to property values to public transportation access. You can consult this list of the best and worst states to retire in to get a sense of where your dollars might go the furthest.
4. Rent out space in your home
The typical American property owner spends 1% to 4% of his or her home's value per year on routine maintenance and repairs alone. It's for this reason that many seniors choose to downsize once they stop working and no longer need as much space. But if you're not looking to move just yet, renting out part of your home could be a relatively easy way to make some extra cash. This especially works for seniors who live in or near a college town or city center full of jobs, as these areas typically see high demand for rentals.
If you don't want to deal with a full-time tenant, you might also explore the possibility of turning your home into a seasonal bed and breakfast, provided your local zoning laws allow for this. If you rent out two rooms for just 10 weekends a year at $150 a night, you'll take in $6,000 in cash (though you should be prepared to pay taxes on that rental income).
5. Start a business
Just because you've grown tired of your old desk job doesn't mean you can't find fulfilling work elsewhere. If you're looking for a good way to generate income in retirement while filling some of your newfound free time, you might consider embarking on your own venture. Over 5 million Americans aged 55 and older run their own businesses, so if you have a talent you can convert into cash, be it consulting, teaching, or baking, you might as well go for it.
It's not unusual for seniors to spend more money in retirement than expected. The more income you have available, the better equipped you'll be to handle whatever expenses come your way.