You’ve spent the good part of your life preparing for retirement and now it’s here. You’ve dreamed of the day where you didn’t have to worry about getting to work on time or meeting anyone’s expectations but your own. However, now you have new worries. Will I run out of money? What should I do with my 401(k)? When should I take Social Security?
If these are some of the questions you are facing, here are five money moves that can help you have a successful retirement.
1. Simplify Your Accounts
If you have left a trail of employer-sponsored retirement plans behind, now is the time to consolidate. For most individuals, managing current retirement plans such as 401(k)s and 403(B)s can be difficult. Knowing how much to invest, when to rebalance, and what investment choices to pick can be a daunting task. Finding time to review a string of previous employer retirement plans can be almost impossible. Most employer retirement plans can be combined into one Rollover IRA. Consult with a Certified Financial Planner in your area to find out the best way to consolidate your accounts. The best strategy is a simplified strategy.
2. Decide When to Take Pensions and Social Security
For those who are lucky enough to be eligible to receive a pension, the first question to ask is, “What options do I have to receive the pension?” Some companies give individuals a choice. Either they can receive the benefit as a one-time lump sum distribution or receive it as a stream of payments. If you have both options, there are pros and cons to both outcomes. For instance, if you take a lump sum distribution, you have immediate access to your entire pension benefit. However, it is up to you what to do with it from there. If you take the annuity pension distribution, you have guaranteed income for life but you have no input in the investment management decisions. Then, there is the decision of when to take the pension. The most important question to ask here is whether or not you need the money. Often, the longer you wait to receive the benefit, the higher the benefit amount. The same holds true for Social Security. Although it is tempting to start receiving the benefit at age 62, the longer you wait, the higher the benefit. Between age 62 and 70, Social Security benefits grow about 7% a year, not including cost-of-living adjustments. Additionally, for married couples, there are strategies available such as “file and suspend” or “restricting an application” that can help retirees significantly increase their Social Security benefits.
3. Know How Much You Can Spend
Now that you have all the time in the world, do you have enough money? First you have to determine, enough money for what? There are the fixed expenses such as taxes, utilities, groceries, mortgage and car payments and there are the discretionary expenses such as eating out, hobbies and vacations. You need to start by writing down how much these expenses would cost annually. From there it gets a little more complicated when you try to factor in your life expectancy, the amount of your assets, your investment return, etc. Although there are retirement planning calculators online, a Certified Financial Planner can give you a more accurate retirement analysis based on your individual needs.