4 ways to help boost your retirement income

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Many Americans are now choosing to work into their retirement years
Staying on the job as little as a year or two longer may help improve your long-term financial outlook.

Key points

  • Longer life expectancies and market volatility are leading many people to consider working longer to continue building their nest egg
  • Postponing retirement can be beneficial. You'll have more time to save while reducing the time your savings must support you once you do retire.
  • Larger Social Security payments, lower health insurance costs and the confidence to consider investing for continued growth are all potential benefits
There are many reasons to consider delaying your departure from the work force, and only some are financial. If you're healthy and you enjoy your job, you may not want to retire. Or you could decide to switch jobs to pursue a lifelong passion. Such choices are all the more likely today, when the average 65-year-old can expect to live almost another 20 years, according to the U.S. Social Security Administration.
Delaying retirement, even for a relatively short time, can help improve your financial outlook.
Still, economic factors are part of the equation for many would-be retirees. According to the 2015 Employee Benefit Research Institute report, 13% of respondents intend to retire later than anticipated, down 2% from 15% in 2014Footnote 1. They may be right to worry. Rising health care costs, especially for long-term care, and uncertainty about investment returns are common concerns. "This raises the specter of higher-than-expected expenses, lower-than-expected income — and the distinct possibility of outliving retirement assets," says Ben Storey, senior retirement product manager, Bank of America Merrill Lynch.Footnote 2 "Delaying retirement, even for a relatively short time, can improve that outlook and help you increase your nest egg."
Here are four ways staying on the job can help.

1. More time to invest

While you keep working, you can continue making contributions to your workplace retirement plan if you have one, or to a traditional or Roth IRA. Not only will you add to your retirement savings, but you can leave those retirement accounts untouched, giving your assets more time to potentially grow. In the case of traditional 401(k)s and IRAs, you'll also extend the period of tax deferral for your investments. (Investment gains in a Roth IRA and withdrawals during retirement are normally federally tax free, and may be state tax free, if taken as qualified distributions.)Footnote 3 You could even make a final push to contribute as much as possible. "If you're 50 or older and can afford it, consider taking advantage of the catch-up provisions that let you maximize your retirement savings contributions," says Debra Greenberg, director, IRA Product Management for Bank of America Merrill Lynch. Those extra amounts take you beyond the normal annual limits for tax-deductible contributions.
Contribution Limits
  Younger than Age 50* Age 50 and older
Traditional** or Roth IRAs
2017 Maximum Contributions***
$5,500 $6,500
401(k)s
2017 Employee Contributions
$18,000 $24,000

* You are treated as being age 50 or older if you will turn age 50 or older at any point during the calendar year.

** Contributions to Traditional IRA accounts may be tax deductible. If you participate in an employer-sponsored retirement plan, the tax laws limit the deductibility of your contributions based on modified adjusted gross income (MAGI) ranges that are published annually and correspond to your federal tax filing status — if your MAGI is less than the lower limit, you are eligible for a full deduction for your contributions; if your MAGI is between the limits, you are eligible for a partial deduction; and if your MAGI is above the upper limit you are not eligible for a deduction. For 2017, the MAGI ranges are: $62,000-$72,000 (single and head of household); and $99,000-$119,000 (married filing jointly and qualified widow(er)). If you do not participate in an employer-sponsored retirement plan but your spouse does and your filing status is married filing jointly, the deductibility of your contributions is determined based on the MAGI range of $186,000 - $196,000.

Generally, married couples filing separately are not entitled to a deduction for contributions to traditional IRAs. However, if you are married and file separately but do not live with your spouse at any time during the year, your maximum deduction is determined as if you were a single filer.

If neither you nor your spouse is covered by an employer retirement plan, the maximum deduction is either $5,500 or $6,500, depending on whether you are age 50 or over.

*** You generally have until April 15 of each year to make your IRA contribution for the previous year. If April 15 falls on a weekend or a holiday, the deadline is typically the next business day. 401(k) contributions for 2017 can be made through 12/31/2017.

2. More income from Social Security and annuities

Meanwhile, each year you postpone taking Social Security benefits (until age 70) adds significantly to your monthly check once you begin receiving payments. The earliest you can claim benefits is at age 62. However, if you wait until age 70 instead, you'll receive 76% more each month.
For Social Security, full retirement age is defined as the age at which you may receive "full" retirement benefits. It's currently 66 but will be higher for those born after 1954. This Social Security Administration calculator can help you find your "full retirement age": http://www.ssa.gov/pubs/ageincrease.htm.
Similarly, waiting to start collecting payments from a lifetime annuity that you purchased will also enhance your benefits. "A 68-year-old gets a much better payout from a lifetime annuity than a 66-year-old would because of the difference in life expectancy," says Storey.
The advantages of delaying your Social Security benefit payments
Source: Merrill Lynch Investment Management & Guidance calculations based on Social Security Administration calculator at socialsecurity.gov/OACT/quickcalc/ — accessed April 2016. Full Retirement Age is the age at which a person may first become entitled to full or unreduced retirement benefits.

3. More options for less expensive health insurance

If you stay in the work force and keep your company's health insurance, you'll likely pay lower premiums than if you bought your own policy after retirement. Your company's health insurance may also offer richer benefits than Medicare, which typically covers only 60% of health expenses, according to the U.S. Employee Benefit Research Institute. (Medicare eligibility begins at age 65.)
While you're still working, you may want to consider how you would pay for long-term care in a nursing home if the need arises. "Buying a long-term-care insurance policy when you're in your fifties will be considerably less expensive than if you wait until your late sixties or your seventies," says Greenberg.

4. More confidence as an investor

Having the increased security of a paycheck could also make you more comfortable taking appropriate investment risks that could result in potentially greater investment growth. As you head into retirement, you may need to consider having some allocation to stocks for continued growth potential, says Storey. "You might invest a little more aggressively while you're working, because you'll still have income coming in and more time to recover your losses if the market declines," he says.Footnote 4
Even if continuing to work full time in your current job isn't feasible or palatable, you might get a new lease on your work life by changing careers, joining a nonprofit or scaling back to part time. And whatever path you choose, there could be an additional benefit. "Staying active often helps people live well longer," says Greenberg. "Continuing to work can be the secret to positive mental health."
Next steps

Annuity contract and rider guarantees, or annuity payout rates, are the sole obligations of and backed by the claims paying ability of the issuing insurance company. They are not obligations of or backed by Merrill Lynch or its affiliates, nor do Merrill Lynch or its affiliates make any representations or guarantees regarding the claims-paying ability of the issuing insurance company.

Neither Merrill Lynch nor any of its affiliates or financial advisors provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.

Long-term care insurance coverage contains benefits, exclusions, limitations, eligibility requirements and specific terms and conditions under which the insurance coverage may be continued in force or discontinued. Not all insurance policies and types of coverage may be available in your state.

Footnote 1 Source: 2015 Employee Benefit Research Institute, www.ebri.org

Footnote 2 Bank of America Merrill Lynch is a marketing name for the Retirement Services business of Bank of America Corporation.

Footnote 3 For a distribution from a Roth IRA to be federally tax free, it must be qualified. A qualified distribution from your Roth IRA may be made after a five-year waiting period has been satisfied (this period begins January 1 of the tax year of the first contribution or the year of conversion to any Roth IRA) and you (i) are age 59½ or older; (ii) are disabled, (iii) qualify for a special purpose distribution such as the purchase of a first home (lifetime limit of $10,000), or (iv) are deceased. If you take a non-qualified distribution of your Roth IRA contributions, any Roth IRA investment returns are subject to regular income taxes, plus a possible 10% additional tax if withdrawn before age 59½, unless an exception applies.

Footnote 4 Asset allocation does not ensure a profit or protect against loss in declining markets.

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