4 Ways Fixed-Income Retirees Can Grow Wealth From Lower to Upper Middle Class

A fixed income doesn't have to mean a fixed lifestyle. Many retirees assume their financial position won’t improve once they stop working, but that’s not always the case. With a few strategic adjustments, you can shift your financial trajectory even without a paycheck coming in every month.

Here's what financial experts say can help retirees move from lower to upper middle class while living on a fixed income.

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Make Your Savings Work Harder

Idle retirement savings often miss out on opportunities to earn additional income. Brianna Rodgers, director of investor education at Madison Trust Company, said retirees should ask themselves if their portfolio is structured to earn passive income and grow over time.

"Investments that can generate passive income, such as real estate or private lending, can potentially provide an additional income stream that can possibly propel retirees into the upper middle class," Rodgers said.

For retirees who have most of their savings in a retirement account, Rodgers said a self-directed IRA can open the door to alternative assets that can generate passive income, all in a tax-advantaged structure. That's different from a traditional IRA, which may be limited to stocks, bonds, exchange-traded funds (ETFs) and mutual funds.

Review Your Income and Spending

Improving your finances is not only about increasing investment returns. Keeping more of the income you already have can improve your situation. “Reviewing your spending can potentially help you reduce unnecessary payments and allow more income to be invested,” Rodgers said.

You don’t necessarily have to dramatically cut your spending. You can assess and trim recurring expenses such as insurance premiums, subscriptions, phone plans and other bills that don’t provide much value anymore. Freeing up even a small amount each month and directing it to income-generating investments can add up over time.

Turn Idle Assets Into Income-Producing Assets

Many retirees have significant wealth tied up in assets that aren't actively generating income. Rodgers said this is often an overlooked opportunity. “Reviewing whether those assets produce cash flow and adjusting your investing strategy can potentially improve your retirement lifestyle.”

A retiree with more house than needed may want to consider downsizing or renting out part of the property. Other underutilized assets could be sold, and the proceeds reinvested or used to pay down expensive debt.

The aim is to get all of your assets to generate cash flow.

Tax-Efficient Asset Placement

Investment returns matter, but what you can keep after taxes is more important. "Tax efficiency may help you get the most out of your investment allocation," said Jeffrey Christakos, founder of Christakos Financial. "Asset placement strategies, such as allocating your fixed-income investments to tax-deferred accounts and your stocks to taxable accounts, may help you move forward."

This is called asset location, a strategy you can use to take advantage of the different tax treatments of various types of accounts. Interest-earning investments are generally taxed at ordinary income rates, so they’re more efficient in tax-deferred accounts. Meanwhile, stocks held in taxable accounts may take advantage of lower long-term capital gains rates.

This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.