Mike Lewis, Forbes.com

More than seven out of 10 Americans worry about outliving their income during retirement, according to a recent survey by Prudential PUK +0.76% Retirement. Decades of pension plan conversions to profit-sharing plans, combined with a stock market decline of more than 50% in 2008 and falling real estate values have devastated savings and retirement accounts nationwide. As a result, a combination of post-retirement work, Social Security benefits, and prudent portfolio management is going to be necessary for most baby boomers to retire during the next two decades. Implementing the following steps can help you maximize your post-retirement income so that you remain financially independent during your golden years.

1. Continue to Work
According to a recent Gallup Poll, almost three-quarters of U.S. workers intend to work past retirement age, 40% by choice and 35% due to necessity. Delaying retirement as long as possible makes economic and psychological sense due to the following reasons:

• Increased Financial Security During Retirement. The last years of work are typically the highest income-earning years of employment. At the same time, most of life’s major expenses – buying a house, educating children, acquiring significant assets – are over, so that a greater proportion of income can be devoted to savings.
• Improved Mental and Physical Health. According to Carol Dufouil, at a recent presentation at the Alzheimer’s Association International Conference, the risk of getting dementia drops by 3.2% for every year worked past retirement age. Study after study indicates that people who continue to work live longer and are in better health than those who retire at age 65 or earlier, and the benefits are present for those who worked full-time or part-time.

Unless your job is too physically demanding or stressful, seek to extend your employment, either full-time or part-time, as long as possible.

2. Delay Social Security Benefits
Social Security is an excellent program that Americans have come to rely on, but like most government programs it’s rather complex. The major points you should know about Social Security as it relates to your retirement are as follows:

• You can begin receiving payments at any time after you reach age 62. However, the payments are going to be permanently reduced if you receive them before retirement age, unless those benefits are recaptured due to the level of your earned income. Your full retirement age depends upon the date of your birthday; the reduction in benefits is based upon the number of months between your start date and full retirement age.
• Your spouse, if age 62 or older, is entitled to receive the higher of either a benefit for their own earnings or one-half of your benefit. His or her payment, however, is also going to be permanently reduced if payments begin before their full retirement age. At your death, your surviving spouse’s payment is increased to 100% of the monthly payment amount you received. A spouse cannot receive more than one Social Security benefit at a time.
• If you begin Social Security payments before your full retirement age, your payments are reduced $1 for every $2 you earn above $15,120, referred to as the “retirement earnings test exempt amount.” For example, if you elect to take benefits at age 62 and receive payments of $1,200 per month ($14,400 annually) and have employment income greater than $43,920, your Social Security payments are reduced accordingly. However, if this occurs, you receive credit for the recovered payments and a higher monthly benefit when your earned income falls below the exempt amount or you reach full retirement age. If you begin taking payments the year you reach full retirement age, your benefit is reduced $1 for every $3 earned for that year only. There is no penalty for earned income in the years following your full retirement age.
• Your monthly benefit is proportionately increased by two-thirds of 1% for each month you delay taking Social Security after reaching full retirement age until age 70. However, delaying payments after age 70 does not increase the monthly benefit.
• Social Security benefit payments are taxable above certain total income levels ($25,000 for an individual return, $32,000 for a joint return), but only a portion of your benefits are taxed – depending on your income level. Arrangements can be made to have projected taxes withheld from each payment or quarterly tax estimated payments are possible.

As a general rule, delaying Social Security benefits until full retirement age, and age 70 at a maximum, makes the most financial sense. However, there are exceptions. For example, many marriages have two wage earners, each of whom are entitled to their own benefit or a spousal benefit, whichever is higher. Bill J. at age 66 continues to work while Mary, his wife, has recently retired as an administrative assistant after 30 years. Mary’s personal Social Security benefit is $800 per month, less than she would receive as a spousal benefit. However, Bill elects to defer his retirement until age 70. Mary can receive the $800 in her own name until Bill retires in four years. His estimated payment is going to be $2,940 at that time while Mary’s payment would increase to $1,470 by forfeiting her own benefit and taking the spousal benefit.

The Social Security Administration provides details and calculators to assist people with their retirement planning, including a calculation of future benefits. You should be aware that the Social Security Program has been the subject of considerable political debate and is likely to amended to ensure future benefits.

3. Reduce Your Investment Risk
At retirement, most people are no longer filling their pail of retirement savings, but beginning to withdraw money for living expense. Consequently, it is important to reduce the investment risk of your savings. If you have been an aggressive equities investor, reduce the proportion of your portfolio dedicated to equities to 50% or lower. Historically, conservatively balanced portfolios have been structured 60% bonds and cash equivalents and 40% in a diversified group of equities including large-cap, small-cap, and international stocks.

As a result of interest rates falling for the past decade, bond prices are generally up. However, interest rates are expected to remain level or climb over the next decade as governments build debt and are forced to increase the supply of debt securities. Rather than investing new capital wholly into bonds which are likely to decrease in value, consider staying short-term in cash equivalents or managed bond funds as a diversification alternative.

4. Stabilize Your Investment Income
In retirement years, steady income is critical. While dividends and interest on your portfolio investments are important, consider adding master limited partnerships (MLPs) which invest in energy assets and real estate investment trusts (REITs) to your investments. Payouts can increase from year to year, providing a hedge against inflation, and have some tax advantage in that a portion of the payments is considered a return of capital and not taxable. Some analysts claim MLPs have historically outperformed fixed income securities in periods of rising interest rates. As a consequence, MLPs and REITs may be suitable alternatives to fixed income securities in a conservative portfolio over the next decade.

Conclusion
The average person retiring in their mid-60s is now expected to have an additional 20 years of life. By managing your income prudently, you can reduce the stress and fears of being dependent, while remaining productive and enjoying your retirement, a condition we all hope to achieve.

How do you plan to maximize your post-retirement income?