If you’ve been successfully saving for retirement for the duration of your working life, then you should feel pretty confident when it comes time to retire. But with the savings phase of the wealth-building process behind you, now it’s time to begin using those savings—and to make them work to your advantage. The way you start using your savings when you retire is equally as critical to your financial success in retirement as saving in the first place. Here are a few ways to use your savings smartly in retirement.
- Determine your annual retirement expenses. If you’ve been saving toward a specific goal, then chances are, you’ve already done this to some degree. However, when you are getting closer to retirement, it’s time to take another, more definite look on how much you anticipate spending each year as a retiree—and therefore how much income you will need. Several experts suggest that you’ll need about 80 percent of your pre-retirement income to maintain the same or similar quality of life after you retire. After you have a number in mind, take inventory of your income sources to conclude where exactly that money will be coming from.
- Check to see how much you can expect from Social Security. Take Social Security into account when itemizing your sources of retirement income. You can visit the Social Security Administration’s website, create an account and fill out the appropriate information to get an estimate as to how much you can expect from Social Security. This amount also depends on when you opt to take Social Security. The longer you delay claiming your benefits up to age 70, the more money you will be eligible to receive. Once you have a number, subtract it from your projected annual income need to see exactly how much will need to come from savings.
- Pinpoint how much you are willing to risk. It’s important to have at least a portion of your retirement income in risk-protected investments as you get closer to retirement; however, there is also something to be said for investing too conservatively. That’s because you have to be able to keep up with inflation. For example, if the majority of your money is invested in bonds, your portfolio will have a hard time keeping up with inflation, meaning your expenses will increase, but your income will not. At Ty J. Young Inc., we suggest investing according to the Rule of 100, which states that at least the percentage of your income equal to your age should exist in risk-protected investments. It is possible to have your money protected while still growing at a reasonable rate of return at the same time, in a product like a good fixed index annuity.
- Strategize your withdrawals. The order in which you make withdrawals from your various retirement accounts makes a difference. It’s a good idea to draw money from your taxable accounts (like your traditional investment account, for example) first so that your tax-deferred accounts (like your traditional IRA and 401(k) can continue to compound. At age 70.5, you will be required to take regular distributions from these accounts. Save your Roth IRA for last. Roth IRA accounts have no required minimum distributions, and your withdrawals will be tax free.
- Reevaluate your financial plan regularly. You may get into retirement and realize that some parts of your financial plan need adjusting—and that’s OK. Just make sure you reevaluate your financial plan at least once a year to make sure it is still working for you the way you need it to.
The manner in which you start using your savings when you retire can mean the difference between you meeting your financial needs in retirement and running out of money too quickly. If running out of money in retirement is a fear that you have, our knowledgeable Ty J. Young Inc. advisors can help by offering you a product that will guarantee the protection of your principal. Give us a call today at 877-912-1919!