Retirement Income: 4 Ways to Boost Yours

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Everyone would like to retire comfortably, but the grim reality is that many people simply won't have enough retirement income to do so because of their poor money management habits.

According to a study conducted by the Federal Reserve and released in August, 19% of all Americans near retirement age (age 55-64) have absolutely no money saved for retirement. Expand this age range to all adults, and the reality of Americans' poor savings rate is even clearer: 31% of adults in this country have no savings whatsoever.

People know what they should be doing, but for whatever reason, they aren't doing it. If this trend isn't broken with the next generation of prospective retirees, we could be looking at a vicious cycle in which children are forced to take care of their parents due to their parents' lack of retirement savings -- which, in turn, hampers the younger generations' ability to save.

So the question we should be asking is: "How can Americans boost their retirement income now so that when they retire, they're set for life?" Luckily, there are a number of ways this can be accomplished. Today we'll look at five of them.

1. Open an IRA
Perhaps the simplest and most effective way to boost your retirement income is to open or add to an individual retirement account. While traditional IRAs may be better suited to select investors, most people should consider a Roth IRA.

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If you're looking for an upfront tax break on your IRA contributions, you won't get it with a Roth IRA -- but you could wind up with much more if you play your cards right. The advantage of a Roth IRA is that money contributed -- a maximum of $5,500 per year (or $6,500 for those aged 50 and up), subject to income limitations -- is allowed to grow completely tax-free so long as it's not withdrawn for an unqualified purpose.

To give you a great example of how a Roth IRA and compounding gains could result in enormous tax savings, let's imagine an investor maxed out their contribution at $5,500 from age 25 to age 59. Let's also assume our investor doesn't increase their contribution upon reaching age 50 and qualifying for the additional catch-up contribution (an unlikely scenario), so their annual savings amount to $5,500 for 34 straight years.

In this scenario, if our investor netted 8% returns per year (which is the average historical return of the stock market), they would have more than $942,000 in their Roth IRA by age 59, which they could begin withdrawing as soon as age 59-1/2. By comparison, if these gains were in a non-tax-advantaged account, it's possible our investor could lose $100,000 to $200,000 of these gains because of capital gains taxes.

Simply put, a Roth IRA is a huge retirement income booster!

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2. Consider investing some money in stocks regardless of your age
Investing in the stock market as you get older is often thought of as being taboo, but it can be a smart move, considering that people are living longer than ever. Pursuing an investing strategy that preserves capital, rather than creating additional capital through investing, could cause you to outlive your money.

Does this mean you should abandon CDs, bonds, and other relatively safe forms of income? Not at all. But it does mean that even if you retire from your job, you shouldn't retire as an investor. Continuing to throw your hat in the ring over the long term will give your portfolio a chance to outperform and last throughout your lifetime. Remember: The key is to focus on the gains you can make over the long term, and not what stock you can scalp $0.20 off of next week.

3. Hold off on taking Social Security benefits for as long as possible
If you've played your cards right and focused on some or all of the retirement income-boosting plans above, then there's a chance you may be able to hold off on taking your Social Security benefits until age 70.

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A retiree who waits as late as possible (age 70) to claim Social Security benefits will receive 76% larger benefits than they would if they took benefits as early as possible (age 62). This can be a substantial amount of income. According to statistics from the Social Security Administration, Social Security benefits represent about 38% of elderly Americans' income. 

Of course, everyone's situation will vary. Some people would rather claim benefits at 62, whether they need that supplemental income or simply want it while they're young enough to enjoy it. Additionally, the benefit of waiting longer to claim your benefits is ultimately only worthwhile if you live long enough to make up for the years you delayed Social Security benefits. However, with life expectancy in the U.S. at an all-time high, waiting longer to claim Social Security benefits may prove to be the smarter move over the long term. .

4. Move to a tax-friendly state
Lastly, be smart about where you retire, as certain locations could save you a lot of money during your golden years.

It's not something that you'll hear many people talk about, because state-level tax laws are subject to change, but being in a tax-unfriendly state can hurt your pocketbook in the end. Unfortunately, there is no utopia where you pay no taxes whatsoever, but there are a number of states to choose from that offer generously low tax burdens for retirees.

Source: Flickr user Hammerin Man.

For example, Wyoming and North Dakota offer two of the three lowest tax burdens as of 2011, according to the Tax Foundation. Because of the abundant natural resources in these states (namely, oil), collecting exorbitant amounts of money from taxes isn't necessary. This is why Wyoming residents have a minuscule 4% state sales tax and pay no state income tax, estate tax, or inheritance tax. North Dakota, on the other hand, does hit retirees with a tax on their Social Security benefits up to the rate that they are taxed on the federal level. However, the state does offer a lower-than-average state sales tax of 5% and a low cost of living.

Best of all, if Wyoming or North Dakota isn't warm enough for you, Texas ranked No. 4 in terms of lowest tax burden.

You can do it -- and we can help
Building up enough retirement income to live comfortably until the end of your days isn't as difficult as it might seem, so long as you start saving and investing early and understand that the process evolves throughout your lifetime. 

How to get even more income during retirementSocial Security plays a key role in your financial security, but it's not the only way to boost your retirement income. In our brand-new free report, our retirement experts give their insight on a simple strategy to take advantage of a little-known IRS rule that can help ensure a more comfortable retirement for you and your family. Click here to get your copy today.

The article Retirement Income: 4 Ways to Boost Yours originally appeared on

Sean Williams  has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name  TMFUltraLong , track every pick he makes under the screen name  TrackUltraLong , and check him out on Twitter, where he goes by the handle  @TMFUltraLong . The Motley Fool owns shares of, and recommends Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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