The so-called silver tsunami of retirees is starting to crest this year, as a record 4.1 million Americans will turn 65 in 2024. Many people are joining the exodus from the workforce, but not all are retiring. Some people cannot afford to pay retirement benefits. Additionally, an increasing number of college-educated baby boomers want to continue working even though they can afford to retire.
Still, the baby boomer generationpeak 65 zone”, the number of people retiring is expected to jump from around 10,000 per day over the past decade. Over 11,200, according to the Lifetime Income Alliance’s Retirement Income Research Institute. The rapid increase in retirees is expected to last until 2027.
Boomers have been saving, investing, and preparing for their next chapter for decades, but there are some strategies they may have overlooked. For those nearing retirement, here are his five tips from his financial advisor for maximizing your money and longevity during your golden years.
1. Consider the following. loss conversion
Most people are familiar with 401(k)s and IRAs, but there are other retirement accounts that can be part of your financial plan, such as Roth IRAs. Usually these are considered to be best suited for young workers, but Income limits for contributionsIf your earnings are too high to contribute fully to one, you can still get Roth benefits through a Roth conversion.
As the name suggests, this strategy involves converting a traditional IRA to a Roth IRA. When you make a conversion, you are essentially moving funds from a pre-tax vehicle to an after-tax vehicle. You’ll pay taxes on that money at the current rate, but it will grow tax-free after that.
Advisers say the benefits are many. Withdrawals in retirement are tax-free (provided you meet other requirements) and there are no required minimum distributions during your lifetime. This is a good way to add tax diversification to your financial plan and reduce your lifetime tax burden.
2. Optimize your taxable account
Speaking of which, tax diversification can go beyond 401(k)s and IRAs. Taxable accounts also play an important role, and it’s important to know which one to tap first.
“In the case of 401(k)s and IRAs, the federal and state governments may ‘own’ approximately 30% to 50% of these accounts, as they are all pre-tax and subject to income tax,” Texas states. said resident Scott Bishop. Obtained Certified Financial Planner (CFP) certification. “Results may be different if the funds are in a Roth IRA or taxable brokerage account.”
Taxable accounts don’t have the same tax benefits as retirement accounts, but they also don’t have the same restrictions as retirement accounts. You can invest for your future with no contribution limits, withdrawal penalties, or required distributions.
Parking your money in a brokerage account is especially useful if you’re not sure which tax bracket you’ll fall into when you retire. Withdrawals from taxable accounts are taxed on the following basis: capital gain rate, Meanwhile, money withdrawn from a 401(k) is taxed at your ordinary income tax rate (which may be higher). Also, in a taxable account, only the profits are taxed, but the entire withdrawal from a 401(k) is taxed. Having a variety of accounts allows you to develop a strategic withdrawal strategy.
“Just as you diversify your investments to deal with market uncertainty, diversifying the tax treatment of your accounts can help you navigate tax uncertainty and manage your retirement income.” It helps,” writes Judith Ward, CFP. T. Rowe Price.
And of course, you’ll want to have a chunk of money set aside in cash for emergencies. Wes Battle, a Maryland-based CFP, says the ideal amount is six months’ worth of expenses.
3. Delay in social security
Some people can start collecting Social Security benefits as early as age 62, but financial advisors say it’s best to postpone taking them until age 70, or at least until you reach so-called full retirement age. . Because you use some of your savings from other retirement accounts first, you can increase your benefit amount and lower your taxable income. “This is one of the most overlooked opportunities in financial planning,” says Andy Baxley, his CFP in Illinois.
Your full retirement age depends on when you were born. The full retirement age for a person born after 1960 is 67 years old. For those born from 1955 to the end of 1959, he is 66 years to 2 months and he is 66 years to 10 months. If he was born before 1955, he will be 66 years old (he has already reached that age). If you postpone until age 70, “Delayed Retirement” Credityou will get higher profits.
Even if you’re unlikely to turn 70, delaying it by even a few years or months can make a big difference in the size of the check you ultimately receive. You can see your estimated benefit amount on your annual Social Security statement. Social Security Administration website.
4. Fine-tune your budget
Many people (and the financial media) focus on reaching a magical retirement savings “number,” whether it’s $1 million or $1.46 million or more. But the more important number for those nearing retirement to focus on is actually their retirement budget numbers, Bishop says. They can be divided into the following categories:
- Fixed cost. These include mortgages, rent, insurance, property taxes, food, medical expenses, etc.
- discretionary costs. This includes estimating the cost of retirement fun things like traveling and eating out.
- Future planned costs. Fixed and discretionary expenses are likely to make up the bulk of your budget in most cases, but problems can arise if you don’t anticipate other expenses such as home repairs, a new car, or long-term care. there is.
Budgets “need to be thoughtful and conservative,” Bishop said. Your advisor can help you create a cost that works for your family, taking into account contingency costs.
That said, budgets are always subject to change. Sandy Weaver, a CFP in Kansas, suggests testing your monthly withdrawal amounts for about six months and readjusting them if necessary. Your expenses will change after you retire, so it’s okay to change your plans.
“Don’t sweat the details,” says Weaver. “The retirement period is long, so [potentially] It lasts over 30 years, so even if you make a financial mistake for a year or two, it’s possible to get back on track. ”
5. Make a “post-retirement plan”
Finally, advisors say that while it’s important to get your financial and tax strategy right, it’s equally important to make the most of your retirement years. You have a financial plan, but you’ll need a comprehensive life plan as well. How can I keep my mind and body healthy? Are you interested in volunteering? Would part-time be better? Would you like to help your grandchild? If you don’t think about it in advance, filling your time easily may be harder than you think.
One strategy is to create what is called a non-retirement plan.Outlined by Peabody Award-winning journalist Mark Walton in his book Pre-retirees: How the most talented people live happily ever after, this involves thinking long and hard about what fascinates you and what you can devote your time to in retirement. It can be a (full-time or part-time) job, but it doesn’t have to be.
Howard Pressman, a Virginia-based CFP, says, “Soon-to-be retirees know that people who retire for something are more successful than people who retire from something.” You should keep that in mind.” “Twenty-four hours is a long time if you’re just sitting on your porch yelling at the neighborhood kids to stay off your lawn.”
He suggests asking yourself questions such as where will you live? How do you stay engaged? How do you stay active? How do you replace the social connections lost at work?
“The clearer this vision is, the easier the transition will be,” Pressman says. “There’s a big difference between a financially secure retirement and a happy retirement.”
