How to Strengthen Your Retirement End Game
These strategies will help prevent you from outliving your retirement savings
We spend much of our career saving and investing for retirement. And the challenges don't end on the day we retire. We must then manage our nest eggs to make sure our retirement savings lasts for the rest of our lives. Here are some ways to improve your retirement end game.
Plan how you will draw down your savings. Develop a plan to draw down your retirement savings at an annual rate, such as 4 percent of the initial balance each year, with adjustments for inflation. "You can withdraw between 4 and 6 percent of your portfolio each year and still protect the principal," says
Retain an emergency fund.
Keep an emergency fund of immediately available cash so that an unexpected expense doesn't disrupt your retirement draw down strategy. "You always need to have an emergency fund in another account that is not part of the investment portfolio, but in a bank or mutual fund," says Overstreet. "If you are heavily dependent on a portfolio, you're going to need two or three years worth of income sitting in some very safe place."
If the bulk of your retirement savings is in tax deferred retirement accounts including 401(k)s and IRAs, your timing of withdrawals could impact how much you pay in taxes. "If you take too much in one year your tax bracket could go up because you have a big chuck of money boosting your income," says Overstreet. "I believe in trying to stretch things out so you don't have too much income in any one particular year." Withdrawals from traditional retirement accounts generally become required after age 70½. Those who fail to withdraw the correct amount must pay a 50 percent tax penalty on the amount that should have been withdrawn.
The monthly payment you are eligible for from the
Pay off your mortgage.
You will be able to get by on a much smaller income in retirement if you can eliminate your mortgage. "When you retire and have no mortgage to pay it greatly improves your retirement income," says Cannizzaro. Consider a mortgage payment of
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Pay attention to the costs and fees you are paying to invest and take steps to minimize them whenever possible. "It's very common for retail investors who are managing their own money to have multiple layers of underlying expenses that they don't even know about," says
Most people have only one source of inflation-protected retirement income:
Consider part-time or seasonal employment.
A part-time job, even if you only make a few thousand dollars per year, allows you to spend your savings more slowly. You can also use part-time income to pay for gifts and trips and other non-necessities that you don't want to use your nest egg to finance. Spending less in the early years of your retirement allows you to preserve assets for the latter part of your retirement when continued employment may no longer be an option.
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Personal Finance - How to Strengthen Your Retirement End Game
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