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5 tips for retirement budgets

Make your retirement work for you

You dream of the day when you can bid adieu to the 9 to 5 grind. However, you must count the costs if you want retirement to work for you. Here are five tips to consider as the day gets closer:

1. Know what your monthly income will be

Retirement doesn’t stop your monthly bills, which can include — but aren’t limited to — housing, health care, food, clothing, transportation, entertainment, and travel. 

Since your retirement years can last 30 or more years, almost as many years as your working years, it’s important that you get a good handle now on what your monthly income will be later on so that you can cover your expenses. 

Hopefully, you’ve saved — or are on your way to saving — what you’ll need for retirement. To maintain your lifestyle in retirement, some experts say you’ll need 80 percent of your pre-retirement income every year that you’re retired. (You don’t need a full 100 percent because Social Security payroll taxes and saving for your 401(k) are not an issue anymore.) That means if you currently make $100,000 a year, estimate you’ll need $80,000 annually during your nonworking years.1

Ideally, you’ll have several sources of income that will meet your needs. One of them is Social Security. Get a personalized estimate of your future payments here. You can start collecting it at age 62. However, every year you delay claiming your Social Security past your full retirement age, you earn an additional 8 percent in benefits — until age 70.2 Those born in 1960 or later reach their full retirement age at 67 and can collect an extra 8 percent for three years.3 Exercising patience really does pay off.

Of course, you’ll need more to help supplement those Social Security checks. Consider an investment strategy that incorporates your risk tolerance, objectives, time horizon, and tax situation among other factors. Working with a financial professional can be helpful when considering a long-term investment strategy. 

A pension or a fixed annuity can also be part of a retiree’s guaranteed income strategy.* 

Retirement savings include but aren’t limited to a high-yield savings account, a traditional individual retirement account (IRA), a Roth IRA, a Simple IRA, a traditional 401(k) plan, a Roth 401(k), and a Simplified Employee Pension (SEP) plan.4

Then there are stocks and bonds.

It’s hard to know how much to withdraw from your nest egg because of the unknowns — the length of retirement, spending needs, and investment returns. And you must account for inflation

It’s wise to work with a financial professional to create a distribution strategy that can be adjusted based on retirement plans and market volatility.  

Other considerations when thinking about a paycheck strategy include: tax efficiency (how the money you withdraw will be taxed), required minimum distributions (RMDs) that must be taken from tax-deferred accounts and some tax-free accounts starting at age 72, 73 (for those born 1951–1959), and 75 (for those born 1960 or later), and the logistics needed to convert your investments into cash that funds your retirement paychecks.

2. Have an emergency fund

Aim to have money set aside in an emergency fund — anywhere between 3 months to 24 months of expenses.5

If the market is on the downswing, you may want to dip into that rainy day fund instead of your retirement account.

Funds can also be used to cover large medical expenses not covered by Medicare or private insurance, home repairs, and any other unexpected expenses. 

Be sure to keep your emergency savings account someplace that’s easily accessible and protected from market volatility and withdrawal fees.

3. Consider unexpected health care costs

An expense that is sure to increase is your health care. Some experts estimate that the average couple will need $351,000 to cover medical expenses during their retirement years.And this doesn’t even include long-term care.

You can prepare for it now by contributing to a health savings account (HSA), as long as you’re not on Medicare and are eligible to contribute by participating in a high deductible healthcare plan. If you’re under age 55, you can contribute up to $4,150 annually (or $8,300 if you’re on a family plan). Those who are 55 and older can contribute an extra $1,000 a year. Distributions are tax-free as long as the money is used for a qualified medical expense.7

During your working years, if you can, let your HSA balance grow and compound over time. It will be a very useful resource to help pay for your medical expenses once you retire. When you turn 65, you can also use it to cover non-healthcare expenses; however, the funds withdrawn would be taxed as income.8  

4. What will change in retirement? 

Granted, some of your expenses will decrease (you won’t need as many fancy clothes for your fancy meetings). But some expenses, such as travel, could increase (at least for the first several years of your retirement) as you explore the world and visit all of the places on your bucket list.

If your bucket list includes far-off destinations such as New Zealand and Africa, make your journey to these places earlier in your retirement. A multiple-day flight will be harder to do as you get older.

If travel is important to you and you want to do a lot of it, then try to do it when you can get more bang for your buck — look online for deals or visit in the offseason. 

5. Set up a plan and stick with it

Looking forward to a seven-day weekend for the rest of your life is thrilling — and a little daunting. So be sure to make your plans now so that it works for you when you reach your destination. Because once you get there, your new life is sure to take you many more places.

*Guarantees are subject to the financial strength and claims paying ability of the issuing insurance company.

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1. Waggoner, John. “How much money do you need to retire?” AARP, December 4, 2023.

2. Williams, Geoff. “Reasons to take social security late at age 70,”, September 13, 2023.

3. Brandon, Emily; Hartman, Rachel. “What is the full retirement age for social security?“, May 17, 2023.

4. Borzykowski, Bryan. “The ultimate retirement planning guide for 2022,” CNBC, September 20, 2022.  

5. Horovitz, Bruce. “When to use your emergency fund,” AARP, July 17, 2023.

6. Lee, Medora. “Health care costs climb for retirees. See how much they need to save, even with Medicare,”, February 19, 2024.

7. Dore, Kate. “IRS reveals 2024 health savings account limits. What to know about the ‘significant increase,’ says advisor,”, May 29, 2023.

8. “Understanding HSA-eligible plans”

Investments will fluctuate and when redeemed may be worth more or less than when originally invested.

This information is a general discussion of the relevant federal tax laws provided to promote ideas that may benefit a taxpayer. It is not intended for, nor can it be used by any taxpayer for the purpose of avoiding federal tax penalties. Taxpayers should seek the advice of their own advisors regarding any tax and legal issues specific to their situation.

This is a general communication for informational and educational purposes. The information is not designed, or intended, to be applicable to any person’s individual circumstances. It should not be considered investment advice, nor does it constitute a recommendation that anyone engage in (or refrain from) a particular course of action. If you are seeking investment advice or recommendations, please contact your financial professional. 

DOFU 4-2024