Living Happily in Retirement... Without Breaking the Bank
Retirement has all the ingredients for being an enjoyable stage of life. After working for most of your adulthood, you finally have much more free time to enjoy friends and loved ones and to pursue personal interests and hobbies.
That said, many retirees are concerned about the possibility of outliving their money. This may or may not be a realistic fear, but there are definite ways to try and ensure your expenses don’t overwhelm your income. Developing a realistic spending plan and devising ways to keep money coming in isn’t as difficult as it sounds.
Make The Most Of Potential Income Sources
Delay Social Security
Monthly benefit amounts are substantially greater if you can postpone receiving benefits. Generally, you become eligible to start collecting Social Security at age 62, but if you wait until you’re 70 to receive it, you may qualify for the maximum payment. These benefits may be taxable; it all depends on your total income and filing status.
Avoid Early Withdrawals from 401(k)s and Traditional IRAs
In order to get the most value from your retirement savings accounts, don’t make any withdrawals before age 59½, as they may be subject to a 10% early withdrawal penalty. By law, you are required to begin withdrawing money annually from your 401(k) and traditional IRA accounts at age 70½. You can spend the money you withdraw right away or reinvest it elsewhere.
See if a Rollover IRA Makes Sense for You
If you retire and have money left in your former employer’s 401(k), look into transferring that savings directly into a rollover IRA to avoid having your money reduced by taxes or penalties. If you choose to take your retirement savings as a check, the amount you get may be reduced substantially by taxes, leaving you with less to save or spend.
Guarantee Income from Some of Your Retirement Savings
You can take some of your 401(k) or IRA savings and roll them into annuities, which can provide a guaranteed stream of income. Annuities may be an option for you if you’re afraid of dipping into your retirement fund too soon, as they can provide a reliable source of income to you that’s guaranteed and can last your lifetime, if you choose, unlike the withdrawals from your 401(k) or IRA, which are not. Consider an immediate annuity to create a replacement for the paycheck you’re no longer receiving, starting within as little as a month after you purchase it.
Cash in on the Regular Income That Stocks and Bonds Provide
Take a look at the stocks and bonds you have in your portfolio. Many stocks pay dividends (usually quarterly). Bonds pay interest, and some bonds pay tax-free income. If you’ve been reinvesting those dividends and interest out of habit, you may want to think about receiving checks for these earnings to help provide you with a regular source of income in retirement.
Keep Annual Withdrawals in Check
To make sure your savings don’t run out, as a general rule of thumb, many financial experts suggest limiting annual withdrawals to 4% to 5% of your initial retirement portfolio’s value.
Use Medicare to Help Reduce Health Care Expenses
Medicare is a federal health insurance program that pays for certain health-related expenses, when you reach age 65 (or under 65 if you have a disability), no matter how much income you’re receiving or how much you earned previously. For most Americans, Medicare provides a way to afford health care costs without eating too much into retirement savings. While everyone is entitled to Medicare, make sure to familiarize yourself with the steps you’ll need to take to receive it. To learn more, visit their website.
Remember to Talk to the Financial Pros
Even in retirement, it’s essential to get an annual financial checkup. A financial professional can help you stay on track by reviewing your financial picture, assisting you in deciding when to take account distributions, and making adjustments to your investments so they best fit your needs as they evolve throughout your retirement.