Having money to live off of is one of the biggest concerns for those approaching and already in retirement. According to AARP, almost half of Americans fear running out of money in retirement.1 While it may be a source of stress, the process of managing your retirement income may be simpler than you think.
Determine Your Goals
The first step to any plan is to determine your goals. Once you know where you want to go, you can create a plan to get there. You should consider factors such as your working income, the people you will be supporting, your current savings, etc. You should also consider how you want to spend your time in retirement. Traveling or purchasing a new home could vastly impact your income. Your goals will determine how much income you’ll need. Once you’ve determined your goals, it’s time to speak to a financial professional.
Once you’re ready to take the next step, your financial professional can help determine the right strategy for your situation. The goal for many is to choose strategies that provide you the most income. Your strategy is typically determined by what stage you’re in and your risk tolerance. The closer you are to retirement, the less risk you’ll likely want to take. Many professionals will likely suggest that you don’t put your eggs in one basket but rather into separate “buckets.” The “bucket” system involves placing certain amounts of money into different investments based on when you’ll need the money back. The “bucket” that sits the longest is typically designed to provide the most income.
As you invest your money, make sure you’re choosing the right type of account for you. Some accounts, such as 401(k)s and IRAs, allow you to defer paying taxes until you withdraw. Other types of accounts may tax your money as you sell or if a distribution is made from the investment. You should also consider a tax strategy once it comes time for you to retire, as the money you withdraw from your retirement accounts may be subject to taxes as well. A tax professional can help you determine which accounts and withdrawal strategy could be ideal for you. Taxes are inevitable, but you shouldn’t have to pay more than necessary.
The last thing you want to do is waste valuable time worrying about money. Don’t let income worries spoil your retirement. Determine your goals, invest wisely, and consider a tax-efficient strategy. By planning accordingly and seeking help from a financial professional, you can better prepare for a successful retirement.