After working hard all your life, you deserve to have financial security in retirement. And, the good news is, you can make that happen.
You'll obviously need to save money over the course of your career, though. And, when you get to retirement, you must continue to make smart choices about managing your money so you don't run short of cash toward the end of your life.
To help ensure you have the stable and secure retirement you deserve, it's really important to follow these three rules after you've left the workforce.
1. Maintain a safe withdrawal rate
You cannot live on Social Security alone because these benefits are intended to replace only 40% of pre-retirement income. You'll need money in savings to help support yourself. And you don't want that money to run out.
That's why it's so important to maintain a safe withdrawal rate. That's the rate at which you take money out of your retirement accounts. If you take out too much too soon, you'll drain your account. You won't have enough still invested to earn the returns you need to keep it going.
There are a few ways to maintain a safe withdrawal rate.
-
You can follow the 4% rule, which says you can withdraw 4% of your balance in the first year and then increase withdrawals to keep up with inflation. The effectiveness of this plan has come into question, though, as people have lived longer and projections for future returns have changed.
-
You can use the Required Minimum Distribution tables from the IRS to help you make decisions about withdrawals. These tables tell you how much you must take out of traditional 401(k) and IRAs, but they can also be helpful no matter what kind of retirement plan you have.
-
You can be very conservative and withdraw only returns, leaving your principal alone. But this approach won't work for you unless you have a lot of extra money invested.
Whichever option you pick, the important thing is to have a strategy that won't leave you high and dry.
2. Be smart about when you claim Social Security
While you can't live on Social Security alone, it will still be an important retirement income source. So if you want financial security as a senior, be smart about when you file for benefits.
You can file any time starting at age 62. However, for most people, the best age to get your first benefit check is 70. Waiting to claim benefits results in a higher monthly check, as well as more lifetime benefits if you outlive your life expectancy. If you were the higher earner in your marriage, your spouse will also get larger survivor benefits if you put off your claim.