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5 Ways to Increase Your Retirement Income

5 Ways to Increase Your Retirement Income

Social Security is the primary source of income for over half of older Americans, but the average payment is only about $1,200 per month. And the median individual retirement account balance was $59,000 in 2013, according to an Employee Benefit Research Institute analysis of Federal Reserve Board data. Many retirees will have to cut back quite a bit to survive on Social Security payments and IRA withdrawals without the income from their jobs.

Saving for retirement is difficult, and many people are discouraged by how much they need to save. You would need to accumulate $1 million in your retirement account to generate $40,000 of income per year in retirement, assuming you use the 4 percent safe withdrawal rate throughout retirement. If you withdraw 4 percent of your retirement portfolio each year adjusted for inflation it is likely to last 30 years or more in retirement. An annual income of $40,000 could provide a comfortable retirement for some people in certain parts of the country, but it really depends on what kind of lifestyle you are used to. If you typically spend lavishly, then you will need a lot more income in retirement.

Saving $1 million in a retirement portfolio will be out of reach for most of us. It's a huge amount that takes many years to accumulate. However, there is another way to look at it. Instead of trying to accumulate $1 million in a retirement account, you can work to generate $40,000 per year or the amount that you need to cover your bills. You can use a variety of sources of income to get there including Social Security, a pension and even a part-time job. Here's how to boost your retirement income:

Increase your Social Security benefit. While the average Social Security benefit is modest, you don't have to be average. You can increase your Social Security payments by working longer and earning more during your working years. Social Security benefits are calculated with your 35 highest earning years. The more you earn, the more your Social Security benefit will be. You can also delay claiming Social Security until you're older to increase your monthly payment. For every year you delay past your full retirement age, typically age 66 or 67, your benefit will increase by 8 percent per year until you are 70. Social Security is likely to be a big part of your retirement income, and it's worth the time to try to maximize it. Two-earner households may be able to collect over $3,000 in monthly benefits when they retire.

Find a job with a pension. Jobs that provide a traditional pension to new employees are getting rare, but there are still some out there. If you can find a job with a good pension and work until retirement, that's a great way to receive a second stream of guaranteed monthly payments in addition to Social Security. Police officers, firefighters, teachers, members of the military and civil servants usually have some type of pension plan.

Consider rental income. Being a landlord is not for everyone, but this can be a great source of revenue for many retirees. It's easier than ever before to get started in the rental business. You can even rent out a spare room in your house and start collecting income right away. Or you can go the more traditional route and perhaps rent out your old home when you move instead of selling it. Many early retirees start small and eventually acquire enough properties to fund a very comfortable retirement.

Buy dividend stocks. Another way to start generating another stream of income is to invest in dividend stocks. Dividend aristocrats are companies in the S&P 500 that have increased their dividend payouts for 25 consecutive years. They are a great starting point because your dividend income will most likely increase every year when you invest in these companies. It will take a lot of time and money to generate a substantial amount of income from dividend stocks, but you can begin with very little money. You can start investing in a dividend portfolio with as little as $500 and add to it as you have more savings. If you keep adding to your portfolio and reinvest the dividends, then you should have a nice stream of extra income by the time you retire.

Get a part-time job. Retirement doesn't mean you have to stop working completely. A little income from working part time can help fund an international vacation and other luxuries. Many retirees are still healthy and active, so working part time is a great option for them. If you find yourself bored in retirement, then why not pick up some work and contribute to the economy.

These are just a few ways for retirees to generate income. You can also buy bonds, annuities and other financial instruments to create a stable source of income. And there are many other ways to earn money when you're retired. When you're working, your main source of income is your job. But retirees typically have many sources of income. If you start generating extra income and increase it over many years, then you'll be ready for a comfortable retirement when the time comes.

Joe Udo is a stay at home dad who blogs at Retire by 40 .



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