Seven Ways to Boost Your Retirement

Kiplinger gives us a list of seven ways to boost your retirement which contains the following suggestions:

1. Consider working a little longer.
2. Build tax-free retirement income.
3. Downsize.
4. Keep 50% of your retirement savings invested in the stock market.
5. Delay taking Social Security.
6. Tap your home equity with a reverse mortgage.
7. Buy an annuity.

Here's my take on each of these:

1. Yes, working longer can make a big difference to your retirement savings. But you might not be able to control whether or not you can work longer (due to an accident or illness), so don't bank on this one.

2. Of course. 401ks, IRAs, and Roth IRAs are all retirement savings vehicles everyone should consider. (I know not all of these are tax-free, but they are tax-preferred.)

3. We'll be doing this, I'm sure. Once the kids are gone and we officially retire, we'll probably sell our house and move into a much smaller one.

4. Gone are the days when you put all your retirement savings in an income-producing security. Why? Because people are now living 30 years in retirement, not five years, and it's hard to live off the proceeds of bonds for three decades.

5. We've debated when to take Social Security quite a lot here at Free Money Finance. If you're married, seems like there's a decent strategy you can employ that makes the issue pretty clear. For you singles, it's still murky on what's the best option.

6. I hate this idea. If you do #3 correctly, you shouldn't have to do #6.

7. I'm still sorting out my feelings on this one. When I hear "annuity" I also hear "over-priced, expensive investment." But maybe that's just a bias based on not knowing all the facts.

And a couple points to add:

• I'm surprised they didn't mention the biggest issue in retirement: healthcare.

• For more information on this topic, see Nine Keys to a Great Retirement.

Comments

[Curtis]

My in-laws are nearing retirement now and going through the final planning phases. On #3 above, one thing they realize is that they won't be able to move from their 4 Bedroom, 2100 square foot home of 37 years into a 2 bedroom 1000 square foot apartment. They are planning on downsizing in stages a few years apart until they get small enough. They may even do the first downsize while still working yet in order to get a head start.

The good thing, whenever they buy smaller, they will have enough equity in their home to pay cash if they wish and then the rest can get added to the retirement accounts and start earning some more interest while they prepare to make the next move in a few years.

[pip]

I think you've got enough info to know that an annuity is a TERRIBLE 'investment'. Rip-off, Con, call it what you want - it's true. FMF - Since you said you didn't have enough info, though, maybe it's a good future post topic. I'd love to hear what you have to say after doing the research on this piece of crap.

[Jake]

Annuities -- they are good for exactly one thing, insuring against unplanned-for longevity. That insurance only has actual value from the time you expect to die and afterwards. The present value of that insurance consequently increases as you approach the end of your life expectancy. So while an annuity is verifiably a terrible investment for a young or middle aged person, it becomes increasingly attractive for people approaching what they expect to be the end of their life.

[FMF]

Pip --

Yep, it's on my list for a future post. (On a day I can't come up with anything else.) ;-)

[plonkee]

Whilst I certainly don't intend to rely on one, I might take out a reverse mortgage once I'm retired for the extra cash. Assuming that I have no intention of leaving any money to anyone in particular, what would be the harm?

In the UK, by the time you reach the age of 75 you essentially have to have bought an annuity with your tax-deferred retirement funds. It's the sort where you pay a lump sum and they give you an income. The income can either be fixed or increase with RPI or increase at a fixed rate each year.

[Reverse Mortgage Information]

In theory I agree with you that reverse mortgages are not the best idea. However, a reverse mortgage is the correct choice in certain situations - when there is no other choice. It is easy to say an effective downsize will lead to no need for a reverse mortgage. But what about when the senior is as downsized as they can go? What about emotional attachment to a home they have lived in for 40 years?