9 Best Retirement Income Strategies for 2024
Americans live longer than ever, and retirement is closer than you think. What does this mean for you? For many people in the United States, retirement is the culmination of years of dedication and hard work. But entering this new phase of your life requires careful consideration of retirement income strategies and financial preparation.
The good news? You're still on time. We will share the best retirement income strategies below to help you make the most of your golden years.
Best 9 strategies to boost your retirement income
In retirement, your focus changes from saving to preserving and using your wealth to cover expenses. The main goal is to ensure your savings last for your lifetime. Familiarizing yourself with income strategies for retirement is the best decision you can make today.
1. Social Security
Social Security is the primary source of retirement income for most retirees. The benefits are based on the earnings on which people pay Social Security payroll taxes. The longer you delay starting to collect, the higher your benefits will be.
For instance, if you were born in 1960 and choose to claim Social Security at 62, you will receive 70% of the calculated benefit based on your lifetime earnings. If you wait until the full retirement age of 67, you will be entitled to receive 100% of the benefit amount.
Once an individual begins receiving Social Security, their benefits will be adjusted to ensure they keep up with inflation.
Social Security provides a reliable monthly income based on your earnings throughout your career. However, it's important to note that the average Social Security retirement benefit in 2024 was around $1,862 per month, which is more modest than some may expect.
2. IRA or Roth IRA
Among the best retirement income planning strategies is to open an individual retirement account (IRA). IRAs offer a flexible retirement income planning solution. They are widely available at many financial institutions and don't require the presence of an employer. Investing in a traditional IRA can maximize your pre-tax earnings, allow your account to grow over time, and ensure your long-term financial future. You can deduct some or all of your contributions from your income at tax time, lowering your tax burden. In retirement, distributions will be taxed as income.
Another option is a Roth IRA, which allows you to save with after-tax dollars. This means you won't lower your taxable income now, but you'll gain tax benefits in the future.
When you withdraw money from a Roth IRA in retirement, you won't have to pay taxes on those distributions.
3. 401(k) account
The 401(k) plan represents employers' most widespread retirement savings option in the United States.
Employees can allocate a portion of their earnings before taxes, meaning these funds will not be taxed as part of their income. The saved money will grow without tax until the employee withdraws it during retirement.
Your 401(k) plans may offer a Roth option, where after-tax contributions lead to tax-free income and withdrawals.
Note that the contribution limit for this retirement income strategy in 2024 is $23,000, which is higher than the $7,000 limit for an IRA.
4. Annuities
One of the most popular income strategies for retirement is an annuity. An annuity is a contract between you and an insurance company that guarantees your income for the rest of your life or for a fixed period. It can be funded through a lump sum or regular payments years in advance. Once obtained, it will provide a steady income stream instead of withdrawing an annual income directly from your retirement accounts.
Essentially, you're purchasing a paycheck for your retirement years. Many individuals seek this tool because it gives a sense of security. Understanding annuities can be challenging, and people may sign up without fully comprehending what they're committing to.
5. Bond portfolio
Since the Federal Reserve raised the short-term interest rate, keeping a bond portfolio has become a smart retirement income strategy. But how does it work? When you buy a bond as an investment, you receive interest payments (yield) at scheduled times and get the principal amount back at the bond's maturity date. Bonds have lower expected volatility and historical returns compared to stocks because the bond issuer is obligated to pay investors as per the bond contract. You can build a diverse bond portfolio with varying yields based on issuer credit quality, bond duration, and current market conditions.
The best thing about a bond portfolio? It provides a steady income with competitive yields and offers flexibility for adjustments.
6. Health Savings Account (HSA)
Knowing medical bills will be a major expense as you age is crucial. Do something about it from now by opening a Health Savings Account (HSA).
HSA is an account that provides tax advantages to help individuals save for medical expenses not covered by high-deductible health plans (HDHPs).
If you open an HSA through your employer, your company will automatically deduct your contributions directly from your paycheck to fund your account.
If you choose to open an HSA through a bank or another financial institution, you will have access to a wider range of funding options.
7. Hedging against inflation
In May 2024, inflation remained high at 3.4 percent annually, raising concerns about its impact on retirement planning. That’s why it's essential to develop retirement income planning strategies. If you find yourself with an extra cash, it's worth considering allocating a portion of it to long-term investments that have the potential to preserve and potentially increase your purchasing power over the years.
8. General Investment Income
Keep in mind the importance of exploring alternative investment options that can generate long-term income. Investment income is derived from profits earned from various types of investments, including real estate and stock sales. These sources of income typically requires more hands-on management and involves higher levels of risk, but they also offer the potential for greater returns on investment.
9. Ask for professional help
The most effective retirement income strategies are developed by professionals who understand your financial situation, goals, and realistic options.
Here at Bloom Financial, we know that planning for retirement can seem overwhelming.
Our team's core mission is to simplify the process for you. We achieve this by developing personalized strategies tailored to your specific goals and needs.
Let us guide you.
Conclusions
It is essential to identify the best retirement income strategies for your needs.
We encourage you to plan your retirement using the strategies we've outlined above, as they can really pay off when you step into your golden years.
One final advice: Make it a priority to take full advantage of tax-advantaged retirement plans while you're still employed.
