You have worked hard all your life, diligently putting money aside and saving a portion of your earnings for retirement. Now that the end of your working life is on the horizon, it is time to think about where your post-work income will come from. Building an income in retirement is no easy task, and it requires proper planning and dedication. It is not enough to put money aside for retirement – without a solid plan for income, you could find yourself lost. Here are three smart strategies you can use to squeeze more income out of the money you have already saved.
Use a Tax-Smart Withdrawal Plan
When you are retired, you are responsible for creating an income plan, but you are also responsible for paying taxes on that income. That means where you get your retirement income matters, so create a tax-smart withdrawal plan from the start.
The money you withdraw from things like Roth IRA accounts and Roth 401(k) accounts comes out tax-free, while withdrawals from traditional accounts are generally taxed at your normal income tax rate. Striking the right balance between tax-free Roth IRA and 401(k) withdrawals and other types of accounts can keep your tax rate low and help you keep more of your money.
Cut Your Investment Expenses
Every dollar you spend on investment expenses is one less dollar you will have in retirement, so take a hard look at what you are paying and look for ways to save. Simply moving from high-cost managed mutual funds to much lower-priced index funds could save you more than 1% a year, and consolidating your accounts could save you even more.
It may be a painful and tedious endeavor, but reviewing your investment expenses is also a worthwhile thing to do. Once you know how much you are spending, you can look for ways to cut those expenses, and the savings will pile up year after year – all the way out to retirement.
Build a CD Ladder
Once you are in retirement, you will need a way to turn your savings into income, and that starts with building a steady stream of money from your bank accounts and other secure investments. One of the best ways to take advantage of rising interest rates is with a CD ladder, a structured portfolio of fully FDIC-insured certificates of deposit.
To build this kind of ladder, you can purchase certificates of deposit of varying lengths, i.e. 3-month, 6-month, 9-month, 12-month and so on. That way you always have a CD coming due, which you can roll over for higher rates. You also have a continuing stream of income you can use to boost your spending in retirement and pay for essential living expenses.
Your retirement years should be a source of satisfaction and relaxation, not stress and deprivation. You have worked hard to build a solid nest egg, and now is the time to turn those savings into the income you will need. The strategies listed above can help you get started, so you can enjoy a happy and financially secure post-work life.