Most retirees believe the only path to higher income in their golden years is to save more money before they stop working. However, financial experts argue that how you manage your existing assets is just as critical as how much you have saved.
By strategically timing Social Security claims, coordinating withdrawals across different account types, and managing tax liabilities, retirees can potentially add thousands of dollars to their annual income. These adjustments often require no additional investment risk—just smarter planning.
The Power of Delaying Social Security
One of the most impactful levers for increasing guaranteed retirement income is delaying Social Security benefits. While many people claim benefits as early as age 62, waiting until age 70 can significantly increase the monthly payout.
Jeremy Keil, a Certified Financial Planner (CFP) and author of Retire Today, highlights that filing at 70 instead of 62 can result in a 77% higher benefit. This strategy is particularly advantageous for individuals with less than $500,000 in retirement savings, as the increased guaranteed income provides a stronger safety net.
Christopher Stroup, CFP and owner of Silicon Beach Financial, notes that benefits increase by approximately 8% per year between full retirement age and age 70. For retirees with family longevity or sufficient savings to cover expenses during the delay, this higher benefit offers two key advantages:
* It adds thousands of dollars to annual income.
* It provides stronger protection against inflation and the risk of outliving one’s savings.
Optimizing Withdrawals Across “Tax Buckets”
Retirees typically hold assets in three distinct types of accounts, often referred to as “tax buckets”:
1. Taxable brokerage accounts
2. Traditional retirement accounts (tax-deferred)
3. Roth accounts (tax-free)
Julian Morris, CFP and principal at Concierge Wealth Management, explains that strategically coordinating withdrawals from these accounts can significantly increase net income. The goal is to manage your tax bracket effectively, ensuring you pay the lowest possible taxes on the income you withdraw.
Even modest tax savings—such as avoiding unnecessary bracket creep or Medicare income-related monthly adjustment amounts (IRMAA) surcharges—can translate into several thousand dollars of additional spendable income per year. By controlling which account you draw from, you maintain greater control over your tax burden and keep more of your money.
Strategic Roth Conversions
Converting portions of tax-deferred retirement accounts to Roth accounts during lower-income years can be a powerful tool for reducing lifetime taxes. This strategy is most effective before required minimum distributions (RMDs) begin.
According to Stroup, these conversions can help reduce future tax brackets and avoid Medicare surcharges. By paying taxes on converted amounts while your income is lower, you lock in tax-free growth and withdrawals for later years when your income—and potentially your tax rate—might be higher.
The Compounding Effect of Early Decisions
Small strategic adjustments made early in retirement can compound into significant financial gains over time. Keil suggests one effective approach: intentionally drawing down your portfolio during the first few years of retirement.
This allows you to delay Social Security, letting it grow and increase in value. Meanwhile, your investment portfolio has the opportunity to recover and grow without the pressure of immediate withdrawals. The result is often more income and a larger remaining balance in the long run.
Rather than seeking a “single magic strategy,” the biggest income improvements usually come from coordinating Social Security timing, tax-efficient withdrawals, and portfolio withdrawals together rather than treating them as separate issues.
Conclusion
Increasing retirement income doesn’t always require saving more money; it often requires saving smarter. By delaying Social Security, optimizing withdrawal strategies across tax buckets, and considering Roth conversions, retirees can unlock thousands of dollars in additional annual income. These coordinated efforts provide greater financial stability and purchasing power in retirement.
