Outliving retirement savings is a huge concern for many Americans, and the worry is not unfounded. Half of older Americans have nothing in retirement savings.1
That worry can trip up what can be a truly enjoyable stage of life. After working for most of your life, retirement offers time to focus on what matters — spending time with loved ones, travelling, or indulging in a hobby that you’ve long dreamed of, like photography.
There are, however, many things you can do to prepare for a long retirement. Developing a realistic financial plan, establishing ways to maintain income, and monitoring your financial health will help to ensure your expenses don’t overwhelm your income.
Your monthly Social Security amounts will be substantially greater if you can postpone receiving benefits. 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 depending on your total income and filing status.
Avoid early withdrawals from 401(k)s and traditional IRAs
If you make withdrawals from your retirement savings accounts before age 59½, they may be subject to a 10 percent early withdrawal penalty. By law, you are required to begin withdrawing money annually from your 401(k) and traditional IRA accounts at age 70½. Delaying withdrawals can help to build your wealth and avoid unwanted penalties.
Rolling money from your 401(k) or IRA into annuities can provide a guaranteed stream of income.2 Unlike withdrawals from your retirement funds, disbursements from annuities are both guaranteed and can last your lifetime. Annuities can provide a reliable, steady source of income that can be received right away, based on a schedule you decide.
Receive regular income through stocks and bonds
Review the stocks and bonds you have in your portfolio for opportunities to receive income. Many stocks pay dividends (usually quarterly). Bonds pay interest and some bonds pay tax-free income. Earnings are often reinvested but receiving the income as checks can provide you with an additional source of income in retirement.3
Use Medicare to help reduce health care expenses
Medicare is a federal health insurance program available when you reach age 65 (or under 65 if you have a disability). For most Americans, Medicare provides a way to afford health care costs and can pay for certain health-related expenses. Be sure to familiarize yourself with the steps you’ll need to take to receive Medicare.
Keep annual withdrawals from savings in check
Financial experts suggest limiting annual withdrawals to four or five percent of your initial retirement portfolio’s value. This will ensure that your savings remain available throughout your retirement.
Review your finances regularly
A financial professional can help you stay on track by reviewing your financial picture, assisting you in deciding when to take account distributions, and by adjusting your investments. It’s important to meet with your financial professional annually to protect your income and ensure that your investments fit your needs as they evolve throughout your retirement.