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Strategies to Maximize Your Retirement Income

April 22, 2024

Blueprint Income Team

A common fear Americans have is being unable to fund their retirements. Many worry that they will have insufficient savings in their retirement accounts and that their income sources — such as stock dividends, Social Security, and pensions — won't be enough to cover their expenses.

If you share these concerns, you might want to consider implementing certain income strategies for retirement, such as the ones we discuss in this article. Before moving forward with a particular strategy, we recommend speaking with a financial adviser. Expert financial advice can help you better understand your current financial situation, plan for contingencies in retirement, and make the wisest decisions based on your circumstances.

Downsize as much as possible

Downsizing means reducing your living expenses because, with fewer expenses, you are better able to stretch your retirement income. To begin, identify costs you can easily cut from your life, such as unused streaming subscriptions, memberships, cloud storage, and insurance policies. Then find ways you can reduce your necessary expenses, such as switching to a cheaper phone and internet plan, mindfully cutting your power and water consumption, and shopping at discount grocery stores.

Once you've identified the areas you can excise or minimize, you can go about setting a strict retirement budget that accounts for your necessities and occasional luxuries. Keep track of your spending, too, so you can fine-tune your budget in a way that lets you live within your means without sacrificing the common pleasures of retirement.

Consider semiretirement

If a person is semiretired, it means that they haven't transitioned straight into full retirement. Instead, they might have taken on a reduced role with their employer or found part-time employment elsewhere. The day in the life of a semiretired person might involve spending weekday mornings fulfilling low-stress responsibilities at their place of work and doing what they please the rest of the day.

Semiretirement enables you to earn a steady income while enjoying sufficient time off to pursue your hobbies and recreation, as other retirees do. It is most effective when you have a plan in mind that accounts for factors such as:

  • How much income you need to sustain your lifestyle.
  • How long you might need to work (daily and long-term).
  • What kind of work aligns with your retirement vision.

You might want to focus your semiretirement job prospects on employers that offer employment benefits to non-full-timers. For example, working for an employer that offers health insurance to part-timers would allow you to combine employer-sponsored coverage with Medicare. This could greatly reduce your healthcare costs — one of the biggest retirement expenses.

Use the 4% rule (or an alternative)

The 4% rule is a spending strategy first articulated by financial adviser William Bengen in 1994. To apply the rule, you follow these steps:

  1. Calculate your total retirement value (the sum of your retirement accounts, income, and portfolio).
  2. In the first year of your retirement, set a spending cap that equates to 4% of your total retirement value. This is your base spending allowance.
  3. In each subsequent year of retirement, set the same dollar limit, plus or minus however much is necessary to account for inflation.

To illustrate, say that your 401(k), IRA, income, and investments amount to $1 million, 4% of which is $40,000. In your first year of retirement, you'd spend no more than $40,000 for the entire year. If inflation stands at 2% the following year, your spending cap would be $40,800 (your base spending allowance times 1.02, the mathematical equivalent of 2% inflation). You then apply this same formula to each year for the rest of your retirement years.

We should note that the 4% rule relies on the following assumptions to work as intended:

  • Your retirement will last 30 years.
  • You have an investment portfolio consisting of 50% stocks and 50% bonds.
  • The market will perform roughly the same as it has in the past.

In reality, many retirements don't last as long as 30 years, your portfolio should be more diversified than an equal stocks/bonds split, and markets are both volatile and unpredictable. With that in mind, use the 4% rule as less of a hard-and-fast set of steps and more like a rule of thumb, adjusting it as needed to your circumstances, lifestyle, retirement goals, and evolving market conditions.

Use the bucket approach

The bucket approach asks you to separate your retirement savings into the following three buckets or categories:

  • Bucket 1: The first bucket is for money you intend to spend within the first five years of retirement, as well as keep for emergency expenses. Because these funds require immediate access, you should keep them liquid. High-yield savings accounts are appropriate "buckets" because they protect your money from market volatility.
  • Bucket 2: The second bucket is for the money you intend to use within the subsequent six to 10 years. You invest this money in low-risk vehicles, such as bonds or certificates of deposit, to ensure some growth. Once your first bucket is empty, you switch to using the funds in the second bucket.
  • Bucket 3: The last bucket is for money you won't touch until at least 11 years into your retirement, meaning that you can invest it in long-lived assets, such as stocks and real estate. As time goes on, you can sell the assets in your third bucket and reinvest them in the low-risk vehicles you've selected for bucket 2.

You can tailor the buckets to your circumstances to get the most out of this approach, such as by adjusting the points at which you'll first start to dip into your buckets, as well as the proportion of your wealth contained in each bucket. A financial adviser can help you calculate the optimal figures and time frames for your needs and goals.

Delay your retirement (or just your Social Security benefits)

Full retirement age currently ranges from 66 to 67 years old depending on your year of birth. Of course, you can retire whenever you want, but an early retirement correlates with a lower income and less time to accrue wealth, while retiring later is associated with the opposite. Delaying retirement also has advantages in terms of your Social Security benefits because every year you work adds earnings to your Social Security record. Therefore, the longer you hold off retirement, the higher your overall and per-check benefits when you do retire.

If you aren't interested in postponing your retirement, you can still maximize your retirement income by delaying your Social Security benefits. The Social Security Administration will add 8% to your benefit for every year past full retirement age that you postpone receiving benefits until you start to receive them or reach age 70. Delaying retirement, therefore, means that you increase the amount you receive with every Social Security check, which can come in handy at a time in your life when you have a clearer sense of your financial needs.

Purchase an annuity

An annuity is a contract you enter with an insurance company or another annuity provider. When you purchase an annuity, you agree to contribute a specific amount of money to the provider in either a lump sum or a series of payments, and you allow the provider to invest your contribution over a specified term (e.g., 10 years). During that time, your money grows tax-deferred based on a particular rate of return. At the term's end, you can roll your funds over into another annuity or convert your annuity into cash payments that can last the rest of your life.

Annuities are a diverse category of insurance products, so there are different types to suit a variety of needs. Fixed annuities are generally the safest option because they offer a fixed rate of return on every year of your term, so you can be fairly sure that you'll receive at least a certain amount of money after you annuitize your contract.

Alternatively, you might consider a fixed index annuity, which offers a fluctuating rate based on the performance of an underlying market index (e.g., the S&P 500). Fixed index annuities can also be low-risk because they offer downside protection, ensuring that you don't lose the amount you initially contributed.

In either case, the money you receive from your annuity can be a valuable supplement to your other retirement income streams. Even a few hundred dollars extra every month can make a big difference in allowing you to enjoy the type of retirement you envision for yourself.

Find out more about maximizing your retirement income with annuities

If you're interested in adding an annuity to your retirement plan, Blueprint Income can help you identify and secure preferable rates. Our annuity consultants can guide you through the process of choosing an annuity provider and purchasing the ideal option for your retirement goals. To learn more, email us at support@blueprintincome.com or call 888-867-7620.


Blueprint Income Team

We are a team of finance, insurance, and actuarial professionals working to make it easier for everyone to achieve a steady and comfortable retirement. We write about annuities (the good and the bad) and provide strategies to help Americans prepare for retirement.