Maximizing Your Funds' Durability Following Your Final Paycheck
Various strategies for funding retirement
Longer retirements are in store for today's elderly compared to their parents' generation. This bodes well for your future, as it buys you more time to pursue your passions, travel, and indulge your grandchildren. However, if you want to retire at a later age, you'll have to budget for more years of living expenses without receiving a paycheck—or a very modest one. That's why retirees should plan wisely for their financial security.
National Coordinator of Community Affairs at the FDIC, Lee Bowman, advised that people establish a plan to ensure that their savings would last.
This article from FDIC Consumer News examines various funding options, along with some common mistakes to avoid, to assist you in making or revising your own plans to save enough for retirement. A word of caution, though: this is simply broad advice. Whether you intend to work part-time or not and how much you spend on healthcare are two of the many variables that will determine how much money you'll need for retirement. To make the greatest option for your finances, it's a good idea to talk to people you trust, such as financial consultants and family members.
Pension and Social Security Benefits: As a first step, you should: Figure out when it would be wise to begin spending this money. For instance, under present law, your Social Security benefits will be permanently and possibly substantially reduced from what they would be at your full retirement age if you begin getting them before your "full" retirement age, which might be anywhere from 65 to 67. Additional reductions will be applied to your payments until full retirement age if you begin receiving Social Security benefits early and continue to work above specific earnings limits. But if you put off collecting Social Security until after you reach full retirement age, you can keep working and still obtain the full retirement benefits—or perhaps more—regardless of your income.
According to the Social Security Administration (SSA), here is some basic advice: To account for the longer period you will receive them, early retirement typically results in reduced Social Security benefits over your lifetime, but the overall benefits are about the same. Taking your benefit before you reach full retirement age has both positive and negative aspects. You get benefits for a longer time, which is a plus. One drawback is that your benefit is cut in half.
Options in employer pension systems are often comparable to Social Security. For assistance, get in touch with the HR department at your place of employment.
Keep in mind that it may take a few weeks before you get your first payment, regardless of when you opt to begin receiving your benefits. If you'd rather not risk a lost or stolen check, you might want to think about having your payments transferred straight to your bank account.
Retirement Accounts (IRAs, 401(k)s, etc.): If you want your retirement funds to grow into something substantial enough to secure your heirs' inheritance or pay for future unexpected medical expenses, you should probably wait as long as possible to withdraw funds from them, much like your Social Security and pension benefits. On the other hand, retirement funds like Individual Retirement Accounts (IRAs) can be a solid source of extra income in times of financial hardship.
Most financial advisors recommend establishing a target annual withdrawal rate before taking funds out of retirement accounts. Set it low enough so that these funds won't be drained too fast. With the help of a tax or financial professional, you can adjust your withdrawal plan annually. You can vary the amount you should withdraw, for instance, based on your own circumstances.
In addition, you should check that your retirement portfolio is diverse by reviewing the various assets you have invested in, such as stocks, bond funds, certificates of deposit, stock mutual funds, and so on.
One more thing: In order to avoid paying hefty penalties from the IRS, retirees must withdraw at least the minimum amount from their tax-deferred retirement savings accounts (except Roth IRAs) annually after the age of 70 ½. (Minimum distributions from your employer's plan are not required to be started until April 1 of the year after you retire, even if you are still working at 70 ½ or later.)
Speaking from experience, Heather Gratton, a Senior Financial Analyst at the FDIC, emphasized that the money needs merely to be withdrawn; spending it is not required. "If you don't need the money you can reinvest it somewhere else, such as in a bank savings account." She went on to say that it's wise to consult a tax or other counsel before making any decisions, since everyone's circumstances are unique.
