Maximize your retirement income
Keep in mind all of the sources you have to help cover expenses in retirement — not just the amount you saved and invested on your own. Reviewing and adjusting all sources may help create an income that lasts your lifetime.
First, review your income sources
For households age 65 or older, this is how a typical retirement income breaks down.Footnote 1
Then, maximize each source
You don't need to do this process in a particular order. Changes you make to any of these income sources could potentially benefit your whole strategy.
SOCIAL SECURITY
Delay taking your benefit.
Maximize your monthly checks by waiting until after your full retirement age to collect Social Security, especially if you're in good health.
This hypothetical example for a single retiree shows that for every year you delay, your benefit may increase 7% to 8%.Footnote 2
Age 62
$16,800
Annual benefit the earliest year you can collect
Age 67
$24,000
Annual benefit at full retirement age
Age 70
$29,760
Only about 10% of those claiming Social Security wait until after their full retirement age.Footnote 3
Coordinate with your spouse.
For married couples, the decision for when each should claim Social Security can be more complicated, especially if one has greater longevity on their side.
This hypothetical example for a married couple demonstrates that the optimal claiming strategy may be to claim at different times.
Claiming options
Lifetime Benefits
If Jim and Maria both take reduced benefits at age 62 their lifetime benefits would be
$1,417,331
If both Both claim at full retirement age (FRA) of 67 their lifetime benefits would be
$1,718,753
If Maria claims at FRA and Jim waits until age 70, increasing Maria's spousal benefits their lifetime benefits would be
$1,853,113
Notes: At FRA, Jim's monthly retirement benefits will be $2,600, Maria's will be $1,000; life expectancy is 85 for Jim and 90 for Maria.
Will you have lifetime income sources to cover your essential retirement expenses? Consider annuities for guaranteed monthly income.
PERSONAL RETIREMENT ACCOUNTS
Take full advantage of savings.
Automate your retirement plan contributions, contribute enough to meet any employer match and consider opening and contributing to a traditional IRA or Roth IRA.
Contribution limits for the 2023 tax year.Footnote 4
Age < 50
Age 50 & over
401(k)
$22,500
$30,000
Traditional/Roth IRA
$6,500
$7,500
If under age 50, the limit is $22,500 for a 401(k) and $6,500 for a traditional or Roth IRA.
If age 50 and older, the limit is $30,000 for a 401(k) and $7,500 for a traditional or Roth IRA.
CURRENT EMPLOYMENT EARNINGS
Consider remaining in the workforce.
More than ever, retirees are working or starting their own businesses.
Percentage of those age 65 or older are currently working.Footnote 5
INVESTMENTS
Develop a withdrawal strategy.
Consider your spending needs and withdraw only what you need from your retirement pool.
Worried about outliving your money? Based on average life expectancies, you may want to consider spending only these percentages of your savings as you age.Footnote 6
Age 55
Age 65
Age 75
Age 85
3.5%
4.2%
5.5%
7.7%
At age 55, spend 3.5%
At age 65, spend 4.2%
At age 75, spend 5.5%
At age 85, spend 7.7%
OTHER
Evaluate your property.
Downsizing to a smaller residence could help boost your cash flow. If you have a vacation house or extra space at home, think about renting it out.
Footnote 1 Congressional Research Service, "Income for the Population Aged 65 and Older: Evidence from the Health Retirement Study," December 2022.
Footnote 2 Social Security Administration, "Benefits Planner," accessed May 2023.
Footnote 3 Altig, Kotlikoff and Ye, "How Much Lifetime Social Security Benefits Are Americans Leaving on the Table?" National Bureau of Economic Research, November 2022.
Footnote 4 Internal Revenue Service.
Footnote 5 Economic Policy Institute, "The Older Workers and Retirement Chartbook," November 2022.
Footnote 6 Chief Investment Office, "Determining sustainable retiree spending rates," January 2022. The systematic withdrawal rate is the maximum initial share of wealth that we believe a client can spend while attaining a desired "probability of success." The probability of success measures the likelihood that a retiree will be able to spend according to plan without exhausting their wealth. Spending is assumed to rise each year with inflation.
All contract guarantees, or annuity payout rates for annuity contracts and all guarantees and benefits of insurance policies are backed by the claims-paying ability of the issuing insurance company. They are not backed by Merrill or its affiliates, nor does Merrill or its affiliates make any representations or guarantees regarding the claims-paying ability of the issuing insurance company.
The Chief Investment Office (CIO) provides thought leadership on wealth management, investment strategy and global markets; portfolio management solutions; due diligence; and solutions oversight and data analytics. CIO viewpoints are developed for Bank of America Private Bank, a division of Bank of America, N.A., ("Bank of America") and Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S" or "Merrill"), a registered broker-dealer, registered investment adviser and a wholly owned subsidiary of Bank of America Corporation ("BofA Corp.").
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