As an investor, you might know about diversifying among asset classes to help minimize risk for a given level of returns.

But did you know you can do something similar for retirement income planning? Diversified income sources can help to buffer your financial plan against risks to any one income stream while you strive to maintain the lifestyle that you want in retirement.

Here are a few income sources to think about as you get started building income for retirement.

Social Security

Social Security is the cornerstone of retirement income for many people: over half of married retirees count on Social Security to provide more than 50% of their retirement income, with an average benefit of $1,335.

However, the age at which you start taking benefits can have a major impact on your income.

While most beneficiaries are eligible to start receiving Social Security at age 62, waiting until age 70 can significantly increase a retiree’s monthly Social Security income (it’s important to note that there’s no benefit to waiting past age 70).

In other words, each year that you delay taking Social Security income, your benefit rises.

For example, for those born between 1943 and 1954, the “full” retirement age is 66. That means you’ll be eligible to get 100% of your benefit at age 66. But waiting until age 70 entitles you to 132% of your benefit. This can provide an important annual income boost for retirees who have the flexibility to wait.

Of course, the choice to start taking benefits at any given time is highly personal. In making your decision, the Social Security Administration recommends considering factors like your employment status, whether your family tends to be long-lived, your health, and your other income sources, among others.

Retirement Assets: Consider diversifying for taxes

Another way to plan and build income for retirement is with your qualified retirement savings accounts.

This can go much further than simply saving as much as you can: depending on your personal situation, it might make sense to “diversify” your savings among both Traditional and Roth accounts. Contributions to Traditional IRAs are made on a pre-tax basis, meaning that distributions are taxed at your usual income tax rate. For Roth IRA accounts, contributions are after-tax and distributions made in retirement are tax free.

Why is this useful? the option to withdraw retirement income from one account or another might help you minimize your overall tax burden in a given year.

For example, if you took on a consulting job one year and earned extra money but don’t want to risk being pushed into a higher tax bracket, it might make sense to withdraw from a Roth IRA instead of a Traditional IRA.

Just keep in mind that there are qualifiers to using a Roth IRA. Be sure to speak with an advisor for guidance on whether this is a suitable solution for you.

Investment and insurance choices

Of course, investment and insurance products can also provide income options for retirement.

Some people look to generate income from financial assets, such as annuities, while others invest in “hard” assets like real estate — or create retirement income streams with a combination of income sources.

That said, there’s no one-size-fits all: choosing between the numerous options available to you is a highly personal process that often benefits from the advice of an advisor. Each potential income stream carries potential costs, benefits, and risks, and it’s important to match those characteristics to your own particular needs.

Bonus: Think about going mortgage-free

Another way to potentially “boost” your retirement income is to help it stretch further by reducing your costs.

A major cost-center for most people: a home mortgage.

Depending on your personal situation, having your house paid in full could free up a significant portion of your income, which could in turn provide more flexibility in managing your retirement finances.

Many retirees also consider downsizing to a more modest home once they hit their golden years (not only is it often cheaper, but it’s also less work!). This can be an especially powerful strategy for California residents.

Think about your needs and goals first

As usual, the right strategy is highly dependent on your individual goals and needs. Any of these strategies might be useful for some but not for others, which is why it’s important to have a clear view of your financial situation as it stands today – and an eye towards where you want to be in the future.

Further reading

https://www.ssa.gov/news/press/basicfact.html

https://www.ssa.gov/planners/retire/applying1.html

https://www.ssa.gov/planners/retire/1943-delay.html

https://www.ssa.gov/planners/retire/applying1.html

https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-iras-rollovers-and-roth-conversions