Seniors are living longer these days, and while that's a good thing overall, it does open the door to one major concern: running out of money in retirement. In fact, in a recent Allianz study, 60% of baby boomers said they were more afraid of outliving their savings than they were of actually dying.
The problem for many older workers is that they're behind on retirement savings and don't have too many years to catch up. According to a 2016 Transamerica study, retirees have an average of just $119,000 in savings at their disposal -- and that's not a whole lot of money when you consider that they'll need to stretch it over a retirement that could last 20 years or more. That's why it's crucial to find ways to boost your (limited) income and alleviate some of the financial pressure so many retirees face.
Here are three ways to get started.
1. Get more out of Social Security
Your Social Security benefits are based on what you earned during your working years. Once you reach your full retirement age (which, for today's workers, is 66, 67, or somewhere in the middle), you'll be eligible to receive your monthly benefits in full.
You can claim those benefits early, but doing so will result in a permanent reduction in payments. On the other hand, if you delay Social Security past your full retirement age, your payments will increase by 8% for every year you hold off, up until age 70, when they max out. As an example, if your full retirement age is 66, your full monthly benefit amount is $1,500, and you wait until age 70 to file for Social Security, you'll convert that $1,500 payment to $1,980 -- for life. In this scenario, if you were to live until age 90, you'd come out over $43,000 ahead by waiting until 70 to file for Social Security.
The only caveat here is that if you don't expect to live very long, then you're probably better off claiming your benefits on time or even early. Delaying Social Security increases your monthly benefit amount, but it reduces the number of individual payments you get.
2. Invest in municipal bonds
Seniors are generally advised to move away from riskier investments like stocks so that their savings won't be subject to huge swings in value. But while bonds are generally less risky, they also offer lower returns, and as an added drawback, the money you make from interest payments is usually subject to taxes, which eats away at your limited profit.
That's why municipal bonds are a good income-generating option for seniors. Municipal bonds -- those issued by cities, states, and other localities -- offer the same benefits of traditional company-issued bonds, but with one key difference: tax-free interest. All municipal bonds are exempt from federal taxes, and if you buy bonds issued by your home state, you'll avoid state and local taxes on your interest payments as well. And while there's no such thing as a completely risk-free investment, you should know that municipal bonds are 50 to 100 times less likely to default on their payments than comparably rated corporate bonds.
How's that for a little peace of mind?
3. Start a business
Many people retire not because they don't enjoy working, but because they want a break from the daily stress of having to report to an office on schedule. If you have the energy to keep working, starting your own business in retirement is a great way to boost your income while pursuing your passion, whatever it may be.
In fact, if you were to start your own business, you'd be contributing to a very positive trend. Data from the Kauffman Index of Entrepreneurship shows that 55-to-64-year-olds made up 24% of new entrepreneurs as of last year. And according to the U.S. Bureau of Labor Statistics, Americans 65 and older are more likely to be self-employed than people of any other age group.
Starting your own business in retirement will serve another important purpose as well: giving you something to do with your newfound free time. Research from the Institute of Economic Affairs tells us that retirement increases the likelihood of falling victim to clinical depression by 40%. Doing a job you love can help you boost not only your income, but your spirits.
Retirement shouldn't be a source of financial stress. If you take a strategic approach to Social Security, invest wisely, and use your abundant free time to your advantage, you can boost your retirement income and fully enjoy the many perks that extra money can buy you.
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