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Investment Strategies to Maximize Retirement Income

4 Min. Read
A couple working to maximize their investments for retirement

Nearly a quarter of the U.S. workforce has no retirement plan, and plenty more are late to the game. The benefits of long-term compounding interest may be off the table, but late comers still have plenty of options to build their retirement nest egg, according to experts. While there is no single “best” way to catch up, there are plenty of investment strategies those behind on retirement saving might want to explore. 

Here are some ways to get your retirement plan back on track. 

Start With a Budget 

Generating a comprehensive retirement plan can be a daunting task. Still, finance expert Ralph Gale recommends easing the process with this simple first step: determine income level to maintain the desired lifestyle. Simply put, establish a budget and stick to it. 

“For late savers, this is a must,” said Gale, founder and president of Fireproof Wealth Management in Grand Rapids, Mich. “If you itemize everything you spend money on, and that includes the $6 chai tea latte at Starbucks, you will soon find ways to reduce expenses and increase savings.” 

That may include giving up some luxuries, according to personal finance specialist Erik Sussman, chief executive of Fort Lauderdale, Fla.-based The Institute of Financial Wellness, and redirecting those expenses into retirement funds. 

Choose a Fiduciary You Can Trust 

Sussman strongly advises consumers to review and select a fiduciary with care. A fiduciary is a person or organization legally and ethically required to put your financial best-interest ahead of all other factors. 

“This is the most important financial relationship you will ever have, and it is more important than ever for planning retirement as a boomer,” says Sussman, “You will need expert advice to determine which strategies and financial products are right for your situation.” 

Maximize Potential Contributions 

Don’t fret. Even latecomers can catch up on retirement savings, according to certified financial planner Darren Colananni. “If you are 50 and just starting to plan for retirement, taking advantage of every retirement account available to you will be powerful,” asserts the wealth management advisor at Centurion Wealth Management, which has offices in McLean, Va. and West Palm Beach, Fla. 

A traditional 401k allows for a maximum annual contribution of $20,500, plus an additional $6,500 for a catch-up contribution. And don’t forget about a Roth IRA, in which holders can contribute up to $6,000 per year, with an additional $1,000 catch-up contribution. 

“Lastly, check if you are eligible with your employer benefits. Contributing to a Health Savings Account (HSA) is a great way to boost savings,” Colananni adds. “You can contribute $3,650 for yourself or $7,300 if you have a family plan.” 

For sole proprietors or others self-employed, a Simplified Employee Pension IRA (SEP-IRA) could be beneficial for building up a nest egg, Holders can contribute up to $61,000 this year, regardless of age, according to financial expert and author Laura Adams. 

“If you’re not eligible for a retirement account or maxed one out and still have more money to invest, use a regular, taxable brokerage account,” advises Adams. 

Leverage Real Estate 

For those with flexibility, or perhaps more of an adventurous streak, moving somewhere with a dramatically lower cost of living could be the answer, suggests Brian Davis real estate investor and co-founder of SparkRental.com

That could mean downsizing, but he prefers “house hacking,” essentially using the home to generate income to offset mortgage payments or rent. Examples include taking on roommates, renting out rooms or in-law suites through lodging sites and apps, or hosting a foreign exchange student, like business partner Deni Supplee did for four years to nearly cover all her mortgage expenses. 

“The fastest way to supercharge your savings rate is to reduce or eliminate your housing payment, the largest expense for most people,” said Davis. 

Though the business is headquartered outside Philadelphia, Davis lives in Brazil for most of the year with his daughter and wife, a counselor at the U.S. embassy school in Brasilia, the nation’s capital, where they receive free housing, full health insurance, and comped flights to the U.S. annually. 

“My family and I enjoy a luxurious lifestyle on a modest budget,” he said. “We live almost entirely on my wife’s teacher salary while saving and investing my income.” 

Refinance for Lower Interest Rates 

For those on the back end of their career, refinancing debt to secure a lower monthly payment and devoting that freed up money for aggressive savings and investing may be a suitable option, according to Melanie Hanson, editor-in-chief of a corporate finance blog. While carrying debt into retirement is not ideal, she admits, it’s a game of interest rates.  

“If you can refinance at a lower rate than your expected returns on retirement savings, the thing to do is take that refinance and maximize your savings while you can,” says Hanson. 

Alternative Investment Strategies 

Real estate investment trusts (REITs), typically own and manage portfolios of vacation rentals, hotels, office buildings, retail centers, and warehouses, among other properties. REITs typically pay out dividends, or investment income without the investor personally buying, managing, renovating, or financing any real estate deals. 

There are plenty of alternative investment strategies to traditional savings plans, Adams asserts.   

“If you’re in your 50s and haven’t saved much for retirement, don’t beat yourself up about it,” she says. “Just start focusing on critical factors that you can control: your expenses and income.”

Regardless of which investment strategies you employ, it’s important to know that you have options, and it can be a good idea to talk to a financial advisor as you map out your future.