By Tom Sightings
Retirement money is a tricky subject since there are so many variables. Some people have all the resources they need, but others struggle to pay for retirement. The age when workers leave their job might range from 55 to 75. And some retirees can reasonably expect to live into their 90s, while others may be lucky to get to 60. Nevertheless, there are a number of financial issues common to all of us. Here is a checklist to help you assess where you stand.
- When do I retire?Many people retire early simply because they can afford to, they’re sick of their jobs or they want an alternative lifestyle. But some early retirees find that they can’t afford the new lifestyle they hoped for. And once you retire, it’s often hard to go back. Your skills become outmoded, your contacts dry up and hiring managers might discriminate against older workers. So be careful about the timing of your retirement.
- When to sign up for Social Security.You can start Social Security benefits anytime after age 62. There are legitimate reasons to take Social Security as soon as you can, but most financial experts recommend waiting, since your monthly payment will continue to grow. If you wait a few years, the difference in your monthly payout could easily be $1,000 or more. And if you end up living a long time, you will eventually get more money from Social Security.
- When to tap into your IRA or 401(k).You can start withdrawing IRA funds at age 59 1/2 without penalty. However, the longer you let your investments grow, the more you’re likely to have to spend.
- Can I risk being in the stock market?If you have retirement savings, you almost have to be in the stock market to protect your spending power. Savings kept in cash earns virtually nothing. Money invested in bonds barely keeps up with inflation and is exposed to losses if interest rates go up. A person entering retirement might live for several decades, and keeping a portion of your retirement assets in stock mutual funds or exchange-traded funds is likely to provide continued investment growth. However, you may want to decrease the percent in the stock market as you get older.
- Do I have too much in the stock market?On the other hand, many retirement accounts have grown over the last ten years as the stock market has more than doubled since the great recession. Check your balances. If too much money has accumulated in stocks, it may be time to pare back in case we face an economic downturn sometime in the next few years.
- Don’t forget to account for taxes.You can check the Social Security website for a projection of your monthly benefit. But don’t take this number at face value. If you earn a relatively modest retirement income – over $25,000 for individuals and $32,000 for couples – the federal government taxes your benefit. Similarly, you will likely have to pay income taxes on IRA and 401(k) withdrawals.
- Should I consult a financial adviser?If turning your retirement savings into a stream of income seems too complicated, it may be time to discuss retirement options with a professional. Some companies offer advice to employees nearing retirement. Some financial firms offer a portfolio analysis, often for free. If you want an independent opinion, it may be worthwhile to hire an outside professional. Tip: Use a fee-based adviser, not one who gets paid on commission.
- How much can I spend?You can safely spend whatever you take in from Social Security, pensions and other ongoing sources of income. According to one rule of thumb, you can also spend down 4 percent of your savings every year in retirement. But the key to spending assets is flexibility. You might be able to spend a little more than 4 percent if your accounts are growing at a healthy clip, but less if they’re not growing at all.
- Can I take out a new loan?The short answer is: no. Taking on new debt in retirement is typically not a good idea. But there are exceptions if the loan is part of an overall financial strategy. For example, you may sell your house and buy a new one, then take on a new mortgage to allow you to use some of your equity for living expenses.
- What if I haven’t saved enough?Retirees typically enjoy a lot of free time, but remember, you are now on a fixed income, so you may have to scale back expenses. That may involve downsizing your home, moving to a less expensive neighborhood or selling off possessions that require expensive upkeep such as a boat, horse or second home.