Living in retirement isn’t always life at the beach; it requires an understanding of key financial issues and careful planning, as well as a close, positive relationship with your financial advisor.
For a stress-free retirement, here are three of the most common mistakes that people make, along with suggested strategies for avoiding them.
Mistake #1–Spending too much too early
- Periodically re-evaluate your budget to ensure it’s still realistic.
- Determine how much you need to put aside to sustain your budget throughout your retirement.
- If your savings don’t match up, gradually pay down debt and increase annual savings.
Mistake #2–Not knowing the consequences of taking distributions
- Don’t withdraw funds without knowing the rules governing withdrawals.
- Decide whether you can put off taking distributions until you reach age 70½, so your money can continue to grow tax-deferred.
- Plan your distribution payouts according to your life expectancy. Withdraw as much as you need for living expenses while keeping the bulk of your assets working for you.
- Withdraw first from savings and taxable investment accounts; only then turn to tax-advantaged accounts.
- When you do tap tax-advantaged accounts, know the consequences.
- Consider opening a Roth IRA. You can also roll over amounts in a Traditional IRA to a Roth IRA, if certain conditions are satisfied.
Mistake #3–Not knowing how and when to grow your assets
- If you need your assets to grow over 10 years or more, consider putting the majority in stocks.
- If you require current income, consider investing the majority of your assets in bonds.
- If you seek stability of principal and don’t need to grow your assets, consider putting the majority of your portfolio in cash equivalents.