How to Maximize Retirement Income


Here are some simple but helpful tips that could help you maximize your retirement income.

The key to a financially sound retirement is early planning and wise investment strategy.


Start Saving for Retirement Early

In order to take advantage of the interest compounding effect you should start saving early in your career. The sooner you start saving, the more you will benefit from interest compounding. Let’s assume that you and your twin brother started working at the age of 25 and plan to retire at the age of 65. You started investing immediately $10,000 annually, but your twin brother started saving the same annual amount 5 years later, at the age of 30. Assuming a nominal investment appreciation of 5% per year, your nest egg at the age of 65 would be $1.34M, while your brother would have only $1M saved by then. Even if you live on a tight budget, start saving a small amount early in your career towards your retirement. Let the time value of money work for you.

Initial saving With a Lump Sum

If a lump sum of money is available to you, you should consider investing it and using it as the base for your retirement fund. For example, consider investing your Wedding gifts of cash to enhance the effect of compounding interest. Let’s suppose that the 2 brothers of the example above had both started investing at the age of 25, but one put in an initial lump sum of $100,000 and invested $10,000 annually thereafter till his retirement, while his brother was able to invest only $10,000 annually. In this case, the first brother would enjoy a $2M retirement package, while his brother would have only $1.34M saved by his retirement age of 65.


Determine your Risk Taking threshold


It is very important to determine early in the game how much risk you are willing to take with your investments. Most people are risk averse and do not enjoy the capital appreciation potential of moderate to high risk investments. However, a mixed investment approach could easily yield an average annual return of 6% to 8%, as compared with a 1%-2% appreciation associated with “safe” investments such as CDs and Cash. Using the example of the 2 brothers, if one of them is risk averse and invests his yearly $10,000 in a 1% CD, his retirement nest egg will accumulate to a mere $508K at the age of 65. His “Risk Taker” brother on the other hand, would enjoy a retirement package of $3.03M, if his portfolio’s average annual return is 8%.




Find the best IRA for you and maximize your employer 401K matching contribution

You should sort carefully through the many different types of IRAs available on the market. For example, the Spousal IRA allows for contributions for your non-working spouse to a separate IRA. The Education IRA allows you to make untaxed contributions of up to $2000 a year toward a program of higher education.
The Simplified Employee Pension IRA (SEP-IRA) and the Savings Incentive Match Plan for Employees (SIMPLE-IRA) allow employers to contribute to employee IRAs. Having an additional or matching contribution to your IRA or your qualified 401K retirement plan will increase the value of your total investment.


Conduct Investment Research

Do your own investment research and educate yourself on your investment options in order to make informed decisions. Get the most out of a financial consultant by doing your homework first. With your consultant’s insight and your own intelligence, you’ll be able to find the best strategies for maximizing your retirement income.


The Bottom Line

Having enough money to live comfortably when you retire isn’t enough for most people. It’s important to have a little extra so you can fulfill your life long dreams and prepare for unexpected expenses during your retirement. Invest wisely, take moderate investment risks early in your career, maximize your 401K and IRA tax free accounts, and try to add lump sum cash to your retirement accounts whenever possible. If you do so, your retirement will be sweet and risk free.


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15 Responses

  1. I’m lucky in that I have a company pension (defined benefit plan), and that I started personal finance blogging in my very early twenties and realized the importance of saving for retirement. I started when I was 22. Now I contribute to both my retirement savings account and my pension.

    1. Awesome job Daisy!
      I guess it is always good to start with things at a young age, especially saving up for the future.

  2. These are very good tips. The earlier you can start the better. If I could do things over again, I would have forgone the new car purchases in my twenties and instead settled for something used and put that car payment towards retirement.

    1. Thanks!
      Guess what, once you are done paying off your debt, you won’t have to worry about the past.
      Everyone makes mistakes!

  3. I’m glad I started investing right when I started working…it doesn’t look like much in the beginning but that compounding really works some magic. I have a pension plan as I work in government, but I also save a good amount in my 457 plan and in my IRA. Also, I prefer low cost index funds.

    1. Great job Andrew.
      People like you will be the most successful, especially when it comes to successful investment and financial planning.

  4. Howdy fantastic website! Does running a blog similar to this take a large amount of
    work? I’ve virtually no expertise in programming but
    I had been hoping to start my own blog in the near future.
    Anyhow, if you have any suggestions or tips for new blog
    owners please share. I understand this is off topic nevertheless I simply
    had to ask. Kudos!

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