How to Maximize your Retirement Income

Retirement, like life itself, is not primarily about finances. However, increased income facilitates comfortable living at any stage of life. Maximising retirement income is more than just reducing expenses or dumping funds into annuities years before retirement. It is relatively easier to maximise retirement income in the pre-retirement phase, especially several years ahead. However, most people are past that stage and have not planned adequately. Fortunately, there are at least ten ways to maximise retirement income.

1. Reverse mortgages- With a mortgage, the property value increases while the mortgage balance decreases. The reverse mortgaging strategy is that complete opposite. It involves reducing the equity on your property while increasing the debt. The debt would be collected when the property is transferred or upon the death of the owner. The equity would be reduced in the form of a monthly payment to the property owner. This somewhat debatable financial strategy is appropriate for retirees over the age of 62 who do not wish to leave an estate.

2. Mortgages- Some commercial banks would mortgage a retiree’s property once a guarantor is assigned. For this to work, the mortgage interest rates should be lower than the highest interest rate one can achieve on a high-yield Certificate of Deposit or similar investment instrument. It may be an unlikely strategy, but could work once the circumstances are favourable. The retiree should also have adequate life insurance as well, to protect the guarantor from incurring debt in the event of the retiree’s death. This is another way to utilise the equity of a property.

3. Tax reduction and immediate annuities- Taxes are a drag on your income. Strategies to reduce taxes involve using gift annuities for charities and investing in tax-free immediate annuities. Immediate annuities also provide increased income that is typically protected from creditors. Apart from increasing your income, you cannot outlive the payments from an immediate annuity.

Utilising the tax-free cash lumpsum and reduced pension on your deferred annuity can also reduce taxes. By definition, taxation on pensions from deferred annuities takes place during the payout phase. Taking the reduced pension could reduce your taxable income and also provide a lumpsum where you can earn tax-free interest.

4. Generate passive income online- there are many strategies that one can use to make money online. Article publishing, ghost-writing, affiliate marketing and advertising are just a few of the ways you can make money online. Some techniques do not even involve having a website. Creating a valuable e-book that people would pay a small fee to download is a great way to generate income while you are asleep. There is no reason why a retiree cannot do all of these things. Getting more familiar with the technology would also serve to keep the mind active.

5. Choosing high-interest Certificates of Deposit: Some CDs have effective annual yields of 7% to 8%. Most retirees would have “core capital”. This is simply capital that they wish to preserve and could afford to invest for an extended period. While security may be the most important part, having a higher interest rate can boost your savings. Some plans allow for withdrawal of interest, so the retiree can benefit directly from the higher interest rates. There are some inevitable trade-offs, but the merits may outweigh the demerits.

6. Invest in close-ended mutual funds: Due to a longer life expectancy, retirees should not force themselves to think short-term in anticipation of departure. Another benefit of thinking ahead is that you increase your income by putting your money to work better for you. Close-ended funds allow you to achieve the same return as an open-end fund by investing less. This is because the shares are sold to another investor instead of being returned to the pool of funds. They work better for retirees due to higher profitability over a shorter period.

7. Part-time employment- Many retirees have a lot of expertise or hobbies that they could use to generate additional income during retirement. The most important aspect of being employed part-time is that you are still mentally and socially engaged. It is of paramount importance that any work or projects undertaken during retirement is enjoyable and not necessarily full-time. The increase in income would be like a bonus compared to the other benefits of part-time employment.

8. Federally backed mortgage notes- This type of investment has a variable maturity period but offers a higher return relative to treasury bills. Mortgage notes involve lending money for the purchase of homes. The notes are guaranteed by a federal agency with the arrangement that the lender can be repaid at the time when the mortgage is paid-off by the borrower.

9. Cash-value life insurance- Settlement companies purchase life insurance policies from retirees. Generally, retirees can sell their life insurance to these companies once they are over the age of 65 and the cash value is over $200,000.00. The value that the retiree may fetch is usually much greater than the proceeds from the surrender of a policy. Alternatively, the existing cash value in your life insurance can be used to provide tax free income that would not affect Social Security benefits.

10. Selling and moving- Your retirement needs may differ significantly from your pre-retirement needs. Housing and accommodation is not an exception. It may be profitable to move to sell more expensive accommodation which is more difficult to maintain and move to a more affordable residence. If you choose your location right you may even reduce your energy bills, home insurance and other associated expenses.

It is important to emphasise that strategies to maximise retirement income involve more than just boosting your income stream. Developing your retirement fund in the aforementioned ways would also ensure that the interest generated augments your income. Maximising your retirement income does not guarantee a great retirement but it certainly can contribute to it.