How to Maximize Your Retirement Income in the 5 Years Before You Retire

Are you planning to retire in roughly five years? If so, or even if you’re a decade or more away from retiring, you might be worried that you’re not going to have enough income to support yourself comfortably in your later decades.

Take heart — because there are ways to beef up your retirement income before saying goodbye to your job.

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How’s your retirement income situation looking?

There’s the flawed, but still helpful, 4% rule that can help you get a rough idea of how much income your nest egg might produce. It suggests that retirees can withdraw 4% in their first year of retirement and then adjust subsequent annual withdrawals for inflation. (Remember to read up on its pros and cons before using this rule.)

The table below shows withdrawals for nest eggs of various sizes:

Data source: Calculations by author.

Most of us would do well to set up multiple income streams for our retirements. Social Security benefits, of course, would be one such stream. Dividend income might be another, as might any pension income you have coming.

Income-maximizing strategies

If you’ve added your likely income streams in retirement but the total doesn’t look sufficient, take a deep breath. You have some options — even if your retirement is only five years away. Here are a few.

• Delay Social Security: When you claim your benefits makes a big difference. People claiming early (you can claim beginning at age 62) will receive smaller checks, while those delaying will get bigger ones. Of course, claiming early means you’ll collect more checks over time, so the difference isn’t as huge as it might seem. For most people, delaying to age 70 will result in collecting the most in total benefits.
• Delay retiring: You won’t like this one, but hear me out. If you can delay retiring by just a few years, you will reap multiple benefits: For one, you will have more time to save, invest, and build your nest egg. For another, there will be fewer years in which you will need to rely on it to support yourself. Delaying retirement will also help you delay claiming Social Security, and it may permit you to remain on your employer’s health insurance plan longer as well.
• Have a side gig for a while: When you retire, you won’t be clocking in and out for many hours a day anymore. But you might still work a little, at least in your initial years of retirement. Doing so can generate valuable income that could cover various living expenses, allowing you to tap less of your nest egg. You might find a low-stress part-time job, or you could take on a side gig such as driving for a ride-share service, delivering food orders, making and selling things, giving lessons, pet-sitting, or tutoring kids. As an example, working five hours a week at $20 an hour would bring in an extra $100 per week, or about $5,000 per year — that’s a helpful sum.
• Cash out a life insurance policy: Some life insurance policies let you cash them out before you die. If no one is depending on you for a death benefit, you might as well tap that income source when you need it.
• Consider a reverse mortgage: This strategy won’t work for everyone. But if you qualify for a reverse mortgage, you can receive a lump sum or regular income from a lender via a loan — with your home as collateral. Once you’re no longer living in your home, the lender gets it, unless you or your heirs pay off the loan.

Whether you’re five years from retiring or even longer, consider some of the strategies above to help generate a fatter income stream for yourself in retirement.

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