You could live to be 100. That's a tremendous gift, but also a cause of worry – will your money last another 30 or 35 years? As retirement approaches, the time is right to make some strategic moves that can significantly impact your future lifestyle.
Here are six actions for you to consider that should assist in stretching your retirement money longer.
Good debt is tax-deductible; bad debt is not. But all debt costs you interest that drains your savings. If you have credit card balances with an average APR of 16%, paying them off is like getting a 16% tax-free return on investment.
The more debt you can remove now, the less it will drain your post-retirement nest egg. And even if your current monthly interest payments seem relatively small right now, retirement has a way of magnifying their size.
You might want to retain your mortgage, if you have one, for the tax deduction. That decision depends on several factors that require careful analysis. It's the kind of decision a financial professional can help you resolve to yield the most beneficial results.
Budgeting is critical because knowing how much you'll need can help you plan. Some rules of thumb can guide you. One such guideline is to limit to 4% of the money you take from savings each year. In theory, that would stretch out your savings for 25 years. Plan to live longer? You could reduce your annual draw to 3%.
The problem with the 4% Rule is its one-size-fits-all nature. It is no substitute for a comprehensive financial plan that covers all the areas that affect your wealth – retirement savings, income, investments, tax planning, health costs, living arrangements, estate planning, charitable giving, and more. A financial plan will help you craft a budget optimized for your unique situation.
Moving can cut costs and enhance your lifestyle. States like North and South Carolina are highly regarded destinations, thanks to their benevolent tax policies, warm climate, variety of urban and rural venues, and relatively low cost of living.
Relocation can stretch your retirement savings and provide a comfortable lifestyle. If you downsize simultaneously, you can significantly cut your housing costs. The money you would have spent on space you no longer need can be better used elsewhere. It's also an opportunity to live in an exciting urban location or a quiet country village—many folks like the idea of living in a retirement community or near a college. By selecting a low-cost state, you can achieve the lifestyle you want at a fraction of the cost.
One of the most important decisions you will make is when to claim your Social Security benefits. It's tempting to grab the money early on (you can begin at age 62), but unless you really need the money to live on, it might make far greater sense to postpone your claim until you reach your full retirement age (66 or 67, depending on when you were born). Not only will you get a larger monthly payment, but you will avoid the withholding rules should you continue to earn income. You can maximize your Social Security income by waiting until 70 to claim your benefits, and that might come in handy if you plan to live another 30 years. You'll also want to explore the rules for spousal benefits, especially if your spouse's lifelong income is very different from yours.
IRAs and 401(k)s require you to take minimum distributions once you reach age 72. But you can postpone your 401k RMD for as long as you continue to work for the sponsoring employer. And if you convert your retirement savings to a Roth IRA, you will avoid any required distributions during your lifetime. The longer you can keep your money invested in a retirement account, the longer you can enjoy tax-deferred or tax-free growth.
If you have a pension from work, you need to consider taking a lump-sum payout or an annuity. Once again, this is a highly individual decision that can benefit from professional advice.
On the cost side, it's essential to understand your healthcare options. Medicare covers some costs, but you can supplement your coverage in several ways. You can minimize or eliminate most out-of-pocket medical expenses with the right choices. Your planning should include consideration of long-term care insurance. Many attractive policies are available, some of which are combined with life insurance. Your financial advisor can be a tremendous resource as you map out your plans for Social Security, pensions, and healthcare.
Retirement is a time to look at your expenses with fresh eyes. Every dollar you spend on things you don't need is a dollar that could have gone to support the lifestyle you want. We mentioned earlier the benefits of downsizing from a home bigger than necessary. Beyond the mortgage savings, you'll spend less on property taxes, insurance, and upkeep.
You might have other expenses that you can cut. Perhaps you have outdated insurance that you no longer need or subscriptions you no longer want. Will you still need two cars after you stop working? You may be surprised by adding up all the opportunities to cut your spending.
Retiring from your job doesn't mean you can't continue to work. Work gives meaning and purpose to many seniors. And lest we forget, work produces income that can help fuel a nicer lifestyle. Consider the opportunities to exploit your experience and expertise through a part-time job, freelancing, consulting, teaching, and so forth. Mobility isn't an issue, as millions of Americans have adapted to working from home. On the other hand, working outside the home can have many positive social aspects. If 80 is the new 60, you can look forward to many more years of exciting work on your own terms.
The years leading up to retirement are critical for planning. I invite you to contact us to set up or review your financial plans now so that your golden years provide you with the lifestyle you want.
Global View is a fee-only, fiduciary, full-service, financial advisory firm headquartered in Greenville, SC that serves clients nationwide. Our mission is to provide truly independent, conflict-free advice and complete wealth management services, so you can protect and maximize the wealth you’ve built. Contact us to see how we can help.