Here's the bad news: The average monthly Social Security retirement benefit was recently $1,365 per month, or about $16,000 per year, with the maximum benefit for those retiring at their full retirement age recently at $2,687 per month -- or about $32,000 annually. That's more than $160,000 extra just for delaying retiring for a few years. If you're willing and able to work a little in your first few years of retirement, you can generate some helpful income. You might even just work part-time for your current employer. Enjoy dividend income You can generate income in retirement by selling off shares of stock from your stock portfolio over time -- but with dividend-paying stocks, you can collect income without having to sell any shares! Here are a few well-regarded stocks with significant dividend yields: Stock Recent Dividend Yield Ford Motor Company 5.4% Verizon Communications 5% Chevron 4.1% Pfizer 3.8% Cisco Systems 3.6% A dividend-focused exchange-traded fund (ETF) can be a fine option, too, offering instant diversification. For example, you could spend less by quitting cable TV and just streaming your video entertainment -- that might save $50 you per month or $600 per year. Believe it or not, you might save hundreds of dollars just by spending an hour on the phone calling insurance companies to get the best current deal on your home insurance and car insurance. You can increase or decrease your benefits by starting to collect Social Security earlier or later than your "full" retirement age, which is 66 or 67 for most of us, and you can make some smart moves by coordinating with your spouse when you each start collecting. Clearly, there are lots of ways that you might increase your income in retirement.
Your 40s are an interesting time of life from a financial perspective. On the one hand, you’re probably past the point of paying off your student loans, and you’re not yet dealing with the astounding cost of college tuition. On the other hand, 40-somethings still have a host of expenses to deal with, from mortgage payments to summer camp to everyday costs that magically manage to increase over time.
If you’re in your 40s, you may be so focused on your immediate expenses that you’ve yet to put much thought into retirement. After all, it’s still a good 20 years away — or more. But your 40s are actually the perfect time to get a handle on retirement, and with that in mind, here are a few moves to focus on.
1. Ramp up your savings
Chances are, you’re earning more in your 40s than you did in your 30s — in which case it pays to stick as much of that money as possible into a retirement account. The beauty of IRAs and 401(k)s is that they offer tax-deferred growth on your investments, which means that instead of paying taxes on your gains year after year, you can reinvest them and grow your nest egg significantly.
Not only that, but funding a traditional IRA or 401(k) will give you an immediate tax break, which will probably come in handy if your salary has increased. A $5,000 contribution to either account, for example, will shave $1,250 off your tax bill if your effective tax rate is 25%.
But crucial as those tax benefits are, the real reason to save aggressively for retirement in your 40s is that you still have time to take advantage of compounding. Say you’re able to save $5,000 a year starting at age 45, with the goal of retiring at 65. If your investments generate an average annual 8% return (which is just below the stock market’s historical average), you’ll be sitting on an extra $229,000 by the time you’re ready to leave the…