We all know how the story goes: we work hard for 40 years, contribute to our 401(K), invest, budget, and everything in between. But what happens after we retire?
The rules of money management shift in retirement, so it’s important to be prepared. Rather than focusing on saving income, it’s time to focus on budgeting the money you currently have.
Here are four great tips for managing money in retirement to maintain your financial security and freedom.
Smart Tax Decisions
Every retirement account is taxed differently, so it pays to be smart and strategic about withdrawals.
For example, traditional 401(K) plans and IRAs have Required Minimum Distributions (RMDs). These are mandatory annual withdrawals that plan account owners must take starting the year they reach 72. RMDs exist to prevent taxpayers from indefinitely deferring taxes on pre-tax income within the accounts.
You also need to be aware of how much money you are withdrawing annually, as this can greatly impact your tax bracket.
Make Wise Decisions
The MFP team understands that retirement is a joyous new life stage with all the freedom and time you deserve. But we also want to remind you that your first few years of retirement should not be a free-for-all when it comes to spending.
You should take some time to consider what is most important to you. Some retirees want to travel the world, take up a hobby, or maybe even move closer to family. All of these things can be possible, if you just take the time to plan and budget.
Delay Social Security
If your situation allows for it, we highly recommend waiting as long as possible to start Social Security. Per the Social Security Administration, “a worker can choose to retire as early as age 62, but doing so may result in a reduction of as much as 30 percent.”
This means the difference between starting Social Security at 62 years old compared to 70 years old could be up to hundreds of thousands of dollars.
The longer you wait, the higher your standard of living will be for the rest of your life.
Keep Planning
Unfortunately, reaching the age of retirement does not put an end to planning. You must continually take stock of your situation and adjust plans as necessary in order to maintain financial security.
Priorities change, investments begin performing differently, medical emergencies arise – all of these circumstances can greatly impact your financial well-being. Monthly financial reviews are a great way to continuously assess your state of affairs and identify problems before they arise.
If you have any questions about managing your money in retirement, or want to discuss your retirement planning, reach out to us today at [email protected] or 301.990.9170.
Securities offered through Registered Representatives of Cambridge Investment Research, Inc., a broker-dealer, member FINRA/SIPC. Advisory services through Cambridge Investment Research Advisors, Inc. a Registered Investment Advisor. Cambridge and Montgomery Financial Partners are not affiliated.
This communication is intended for people in the following states: AZ, CA, DC, FL, HI, IL, IN, MI, MD, MN, NC, NJ, NY, OH, OR, PA, SC, TN, TX, VA, WA, WV
This site contains third-party links. The information being provided is strictly as a courtesy. When you access one of these websites, you are leaving our website and assume total responsibility and risk for your use of the websites you are linking to. We make no representation as to the completeness or accuracy of information provided at these websites. Nor is the company liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, websites, information, and programs made available through this website.
Cambridge does not offer tax advice.
Recent Comments