Account for inflation
This is the tendency of prices to increase over time, which can have a big impact on your purchasing power and lifestyle in retirement. It’s also unpredictable and erodes the value of your assets, especially if those assets earn less than the rate of inflation. Over the last two decades, inflation has trended around 3 percent. It’s wise to add a margin of 1 percent to that for your income strategy plan.
Ways to increase your retirement savings
Even though retirement is right around the corner, it’s never too late to save, save, save! Continue to increase your saving – with a goal of contributing at least 15 percent, or more, of your earnings.
- If you own a home, try to pay off your mortgage before you retire
- Don’t take money out of your retirement savings to pay for your children’s education
- Pay attention to the amount of debt you take on and pay off before retirement
- Review your current life insurance coverage – do you need more?
- Invest the maximum amount in your employer-sponsored 401(k). This will likely fund a big part of your retirement. These plans typically allow you to save on a pre-tax basis while your assets grow tax-deferred. Income taxes are due when you begin taking withdrawals.
- Consider an annuity
- Consider a Roth or traditional IRA to invest above the amount allowed in your retirement plan
- Review your diversification. And know your risk tolerance. Diversification does not prevent loss but it is a method used to manage risk
Calculating your retirement income needs
How much income do you need? Typically, you’ll want to save about 75-85 percent of your pre-retirement income. Since it’s hard to predict your spending, add 5-10 percentage points to that just to be safe.
Working longer — or part time
You can delay retirement or continue working in retirement to boost your retirement income. And you’re not alone. According to Gallop, 74 percent of Americans plan to work past their retirement age – and 63 percent say they’ll work part time in retirement.3
Working longer can provide both financial and social benefits. If you do decide to phase into full retirement while collecting Social Security, your benefit may be subject to income tax depending on your total household income.
Tips for living in retirement
Congratulations! The golden years are finally upon you. Now you can enjoy spending your nest egg you’ve worked so hard to build. And that’s worth repeating. Enjoy yourself!
When and how much to withdraw
How much you decide to withdraw and how frequently you make your withdrawals is one of the biggest challenges of a successful retirement income strategy.
In the past, experts who study the long-term sustainability of withdrawals rates had recommended a “safe” withdrawal rate of 4%. However, this is a “rule of thumb.” Your own withdrawal rate needs to be customized for your income and when your various income sources start.4
Your rate also needs to be adjusted along the way based on fluctuating markets and how the economy is performing. It’s important to get it right – especially in the first few years of your retirement. Your long-term financial security depends on it.
Enjoy your time and don’t worry
No matter what, stop worrying about the things you can’t control – like market returns, taxes, or legislation that could affect your savings or benefits.
Instead, manage your emotions and stay true to your investment strategy. Consider working with a financial professional who can coach you through volatile markets.
Consult a financial professional
Wondering if you’re on track for the retirement you want? There are plenty of online resources, including personalized retirement calculator tools. It’s always a good idea to talk to a financial expert too.
If you’re retired and not sure what percentage you should be withdrawing from your retirement account, a financial advisor can also help. You don’t have to navigate retirement all on your own.