Simple investing is no longer enough as part of your retirement strategies. Read on for a few retirement planning strategies that cover withdrawal, investment, and taxes.
In this article:
- Retirement Withdrawal Strategies
- Retirement Income Strategies
- Retirement Investment Strategies
- Retirement Tax Strategies
Retirement Strategies to Help You Reach Your Financial Goals
Retirement Withdrawal Strategies
Retirement planning should take into consideration several retirement planning factors. One of the most overlooked is how you sustain your retirement income.
Having a good retirement income requires judicious use of retirement savings. And, while withdrawals are an unavoidable part of retirement, here are ways to avoid it from becoming a liability.
1. Trust the Process and Don’t Dispose of Assets Too Soon
An investor should know how long their retirement plan lasts.
Your portfolio may see a lot of ups and downs, and it can be tempting to withdraw money when you need it. Sometimes, you may think about taking more loans and selling some of your mutual funds to pay for an expense.
However, the future you won’t be so thrilled with a retirement saddled with loans and minimal savings.
It takes good discipline and financial maturity to sustain a retirement plan. Have a separate emergency fund so you don’t have to dip into your retirement nest egg if an unexpected expense comes up.
2. Figure out Your Retirement Income and Expenses
Starting your retirement savings and investment is the first part of your journey. You should also plan how much you’ll spend on living expenses with your life expectancy.
Using this data, you can make proper decisions in your financial planning.
The benefits you get from Social Security may not be enough. How much more you’ll need will vary per person, so it’s best to seek the advice of a financial planner who can give you more personalized advice.
If you want a ballpark, try tracking your daily living expenses now. Assuming you’ll maintain the same lifestyle and that you’ve paid off any mortgages and existing debt (e.g. student loans), that should be a good start to how much you’ll be spending after retirement.
3. Calculate Your Withdrawal Rate
Generally speaking, inflation can be pegged at around 3% each year. You can also say that a conservative investment will bring in around 7%.
Let’s assume you’ve paid the appropriate tax rate from your tax bracket on your taxable income. A good rule of thumb is to spend 4% of your retirement savings each year as net income.
You can ask yourself if you can survive or maintain the same lifestyle with that 4% withdrawal rate. You may want to think about getting work part-time or increasing your investments if the answer is no.
Retirement Income Strategies
Once you’ve planned and calculated the withdrawal rates, the next issue would be retirement income.
Social Security benefits shouldn’t be the only source as it may not be enough, especially with more expensive costs like healthcare or assisted living. Also, unlike the stagnant Social Security benefits, your retirement spending increases each year because of inflation.
Here are a few tips and tricks to secure and optimize income for your retirement planning.
4. Diversify Retirement Income with an Annuity or a Pension
Having only stocks and bonds in your portfolio might not be the best idea. Not all companies in the stock market give out stable dividends.
You should think about how you can minimize the risk of outliving your retirement savings. This is why investing in an annuity or a pension can help.
Here are the benefits of an annuity:
- An annuity program can provide a stable source of income. This is especially true for income annuities, compared to an annuity that gives a lump sum.
- Some people get an annuity because most annuity policies give out lifetime income.
- Some annuity policies also have added benefits and riders that make them extremely valuable to retirees.
Another tip: if your company gives out a pension, take it. You’d need all possible sources of income during retirement to ensure that you don’t outlive your retirement savings.
5. Hedge Against Inflation with Optimal Planning
Inflation can eat into your retirement savings, especially if your investment doesn’t match inflation.
This can make reaching your financial goals difficult to reach. You can protect your retirement income from inflation by diversifying.
You can invest in an asset that the public acknowledges as an inflation hedge, such as:
- Real estate
- Precious metals like gold and silver
- Rental assets
- Stable blue-chip companies
- Government treasuries and bonds
6. Postpone Getting Social Security Benefits
Knowing when to receive Social Security benefits can save you a lot of money in the long run.
Getting your social benefits too early can lead to penalties. These penalties are automatically deducted from your Social Security savings.
On average, people choose to receive their Social Security around 66. However, waiting until you reach 70 can give you additional Social Security income
Postponement of receiving Social Security until 70 can you give you an additional 8% for the Social Security payment each year.
Retirement Investment Strategies
Proper retirement planning requires a good investment strategy and self-discipline.
To help you get more from your investment accounts, here are a few tips for the allocation of investments and potential investment options.
7. Prioritize Asset Allocation
A good retirement investment strategy starts with personalized asset allocation. When allocating assets for investments, it’s better to consider your risk appetite and lifetime expectancy.
You may have heard others raving about a new investment option, but it may not sit well with how much risk you’re willing to take on and how near you are to retirement. If you’re nearing retirement, it may be a better option to stick to low-risk investments with more guaranteed returns rather than risking what you already have.
8. To Lower Potential Healthcare Costs, Think About Opening an HSA and Getting Long-Term Care Insurance
Medicare and Medicaid may not be enough to pay for your retirement medical expenses. Allocating some of your investment money to an HSA may be a good strategy.
Think of your HSA as your bank savings account for medical expenses, which also provide you tax advantages and usually a higher growth rate. You will still get a good tax rate, as well as tax deductions if you qualify.
Another thing to consider is long-term care insurance, which can protect your investments from high healthcare costs.
The earlier you get an insurance policy, the cheaper your premiums will be. Some life insurance policies also have a benefit that works like a long-term care policy.
9. Find out Your Investment Costs and Fees
There’s no such thing as a free lunch. Your investments also have costs and fees you may not know about.
Mutual funds and other managed investment vehicles are typically transparent with their fees since they’re required to do so.
However, some custodians also levy a management and administrative fee every year. Take into consideration not only the predicted growth rate of an investment but also its costs and fees.
10. Have an Income Plan
Talk to a good financial advisor or financial planner, especially if you want to retire early. Nothing beats a competent and personalized retirement plan for you.
You need to have an income plan that matches the kind of life you want. Depending on your case, there are different steps involved in making one, including:
- Investing more in dividend companies
- Having a higher percentage of debt investments
- Getting pensions and annuity policies
Retirement Tax Strategies
After building wealth, the next concern will always be protecting it. After inflation, taxes can also eat into your retirement income.
Here are a few steps you can do to optimize your tax bracket and tax advantages.
11. Optimize Your 401(k)
If your employer offers a 401(k) plan, take advantage of it, especially if your employer will give matching contributions. That is basically free money that will grow in a tax-free or tax-advantaged environment.
12. Invest in Assets with an IRA
If you want to increase your net worth by retirement and receive tax advantages, you can get an IRA.
If you think you’ll need your money as soon as possible, you can think about opening a Roth IRA. You may be paying taxes when you contribute, but you get tax-free growth.
On the other hand, a Traditional IRA may lower your tax bracket if you do the maximum contributions.
Lastly, the law does provide those 50 and above an additional $1,000 maximum for catch-up contributions in an IRA. If you’re nearing retirement, this could be advantageous to you.
13. Talk to a Certified Financial Planner
With all the changes and new regulations with finances and taxes, you may find it difficult to DIY your retirement plan. If this is the case, you can talk to a financial planner.
A financial planner can give you more ways to boost your retirement savings and reach your financial goals. They could provide tips that you haven’t previously considered or known about.
Retirement is a multi-step process that involves various considerations and careful planning. I hope these retirement strategies can ease the burden of planning for retirement for you and help you get started right on your retirement planning journey.
What are your other retirement strategies that can help those who are planning for their golden years? Let us know in the comments section below.
- Don’t Ignore This Key Part of Retirement Planning
- The 6 Stages Of Retirement And How To Beat Them All
- How To Give The Best Retirement Speech