Helping Your Money Last... After Your Last Paycheck
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Making Your Money Last After Your Last Paycheck
As you approach retirement, it's crucial to plan how you'll manage your finances once your regular paycheck stops. Here’s a guide to help ensure your savings sustain you through a longer retirement.
Understanding Retirement Needs
Today’s retirees can anticipate more years of spending without a steady income. While this offers more time for activities like traveling and enjoying hobbies, it also requires savvy financial planning.
“You need a strategy to ensure your savings last,” says Lee Bowman, National Coordinator of Community Affairs at the FDIC.
Here's a look at different sources of retirement income and potential pitfalls to avoid. Keep in mind that your personal retirement needs depend on factors like healthcare costs and any part-time work you might consider. Consult with financial advisors and loved ones to determine the best strategy for you.
Social Security and Pension Benefits
Start by determining the optimal time to begin receiving Social Security and pension benefits. Collecting Social Security before reaching your "full" retirement age (65 to 67, depending on current laws) means permanently reduced benefits. If you work while receiving early benefits and exceed certain earnings limits, your benefits may decrease further.
If you delay Social Security past your full retirement age, you can potentially receive higher benefits regardless of other income.
The Social Security Administration offers this guidance: "Early retirement provides the same total benefits spread over a longer time, but each payment is smaller. The advantage is collecting benefits for more time; the disadvantage is reduced benefits."
Employer pension plans often have similar options. Reach out to your employer’s personnel department for more details.
Remember that it may take several weeks to receive your first payment, so consider direct deposit to avoid mail-related issues.
IRAs, 401(k)s, and Other Retirement Savings Plans
Similarly to Social Security, consider delaying withdrawals from retirement accounts like IRAs and 401(k)s to allow them to grow. However, these accounts can be valuable sources of income if necessary.
Financial planners typically suggest setting a low annual withdrawal rate to prevent rapid depletion of funds. Adjust your strategy annually with guidance from a financial advisor, especially as your situation changes.
Regularly review and diversify your retirement portfolio, including stocks, bonds, CDs, and mutual funds.
For those retired and over age 70, remember to take the required minimum distributions from tax-deferred retirement plans (excluding Roth IRAs) to avoid IRS penalties. If still working, you can delay these distributions until the year after you finally retire.
“Remember, withdrawing doesn’t mean spending,” says Heather Gratton, FDIC Senior Financial Analyst. “You can reinvest if you don’t need the funds immediately.”
Each situation is unique, so consult your tax advisor to develop a personalized strategy.
By understanding your options and planning carefully, you can enjoy a fulfilling retirement without financial stress.
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