Make your retirement money lastFinances
You’ve worked hard for your financial nest egg — and for good reason. When you retire, you’ll likely need to rely on that money. So how can you make it last?
Follow these three expert strategies:
- Withdraw wisely
The “4 percent rule” about how much to withdraw from your retirement portfolio each year has been around for years, but it has staying power because it works for many retirees. "Four percent has been a sustainable rate of return, so it’s a good guide for long-term financial planning,” says Martin Levine, CFO of 4Thought Financial Group in Syosset, N.Y.
However, if you can live off less, do it, advises Matt Markowski of Markowski Investments in Tampa, Fla. “You have the highest probability of success during retirement if you can keep your principal in your account.”
Keep in mind, today’s economic environment may require you to rethink your withdrawal strategy. Work with your financial advisor to determine what works best with your retirement savings plan.
- Take monthly instead of annual required distributions
You generally have to start taking Required Minimum Distributions (RMDs) from certain IRA or retirement plan accounts when you reach 72* years of age or, if later, the year in which you retire. However, if your retirement plan account is an IRA, the RMDs must begin once you reach 72, regardless of whether or not you are retired. Roth IRAs do not require withdrawals until after the death of the owner.
What that dollar amount is depends on your account balance and age (you can calculate yours and get RMD details at irs.gov). Instead of taking that distribution as a lump sum annually, take it out monthly. “When you take a lump sum, you risk doing so while the market is low, but by taking a systematic withdraw you spread out that risk,” says Markowski.
- Make more dollars available
If you’re worried you won’t have enough cash, it’s time to look hard at your budget and any debt you’re carrying. If you’re a few years away from retirement, try to reduce your credit card and car payments now, rather than after you’ve retired. That means there will be less money you’ll need to take from your retirement accounts later on — plus, more money you can put into those accounts now. You can also consider raising deductibles on auto insurance or homeowners insurance to free up cash. If you’re already retired, but are still able to work, a part-time job may be able to give you more money to spend versus taking it from your retirement accounts. You could also use your earnings to invest back, says Levine.
This information is brought to you by Athene — where unconventional thinking brings innovative annuity solutions to help make your retirement dreams a reality.
*Historically, federal tax law has set the required beginning age for RMDs at age 70 ½. However, recently enacted federal legislation increases the required beginning age for those born on or after July 1, 1949, to age 72. If you were born before July 1, 1949, your required beginning age for taking RMDs remains age 70 ½.