How to Stretch Your Retirement Dollars: 6 Essential Tips
If you’re concerned about running out of money during retirement, you’re not alone. Most individuals prefer not to re-enter the workforce after leaving it, making it crucial to control spending and hope for investment growth. Here are six valuable suggestions to help maximize your retirement savings:
Build a diversified income stream and mix of assets
Many financial advisors recommend retirees rely on a three-legged stool of income sources: Social Security, pensions, and savings. However, a 2020 study by the National Institute on Retirement Security found that only 7% of retirees had access to all three components. Additionally, 40% relied solely on Social Security, which is not considered sufficient for a secure retirement. It’s important for retirees to have multiple sources of income, such as savings accounts, retirement accounts, Social Security, pensions (if available), annuities, and other assets like rental property or part-time jobs.
Keep debts to a minimum and stick to a budget
While having some debts in retirement is acceptable, it’s essential to avoid going overboard. The Center for Retirement Research at Boston College notes that about two out of three Americans carry some debts in retirement, primarily due to rising mortgage debt. It’s crucial to maintain a reasonable budget and not overspend.
Plan carefully for required minimum distributions (RMDs)
If you have diligently invested in retirement accounts over the years, you might have a substantial nest egg. However, you’ll eventually need to pay taxes as you withdraw money from traditional Individual Retirement Accounts (IRAs) and workplace 401(k)-style plans. Planning your withdrawals strategically can help minimize the tax burden. For example, withdrawing funds after you stop working but before claiming Social Security may result in a lower tax bracket compared to adding RMD withdrawals to Social Security benefits and potential job income.
Keep family and financial obligations to a minimum
If you’re concerned about your financial well-being during retirement, it’s best to avoid subsidizing other individuals, including children, grandchildren, and friends. Providing cash assistance when possible, rather than co-signing loans, is generally a better approach. When it comes to helping relatives with housing, it’s advisable to keep rental properties separate from family members to prevent potential complications. Assisting them in covering rent or purchasing a home on their own is often a better alternative.
Withdraw money at a conservative rate
Determining how much of your savings and investments to spend each year presents one of the biggest challenges in retirement planning. With uncertainties about investment performance, unexpected expenses, and lifespan, it’s important to strike a balance. Withdrawing around 4% of your savings annually is a commonly recommended strategy for individuals starting withdrawals around the traditional retirement age of 65. However, for those retiring earlier, a higher percentage may be necessary.
Consider adding health-care protection
Basic Medicare may not cover all your health-care expenses in retirement, making it important to explore additional options like Medicare Advantage plans and long-term care insurance. While long-term care insurance can be expensive, saving for potential needs in a separate account is a viable alternative. This way, the money can be used if necessary or retained if long-term care expenses are not incurred.
In conclusion, planning for a financially secure retirement requires careful consideration of various factors. By building a diversified income stream, minimizing debts, planning for RMDs, limiting family obligations, withdrawing money conservatively, and considering health-care protection, you can stretch your retirement dollars and enjoy peace of mind during your golden years.