The so-called silver tsunami of retirees is beginning to peak this year, with 4.1 million Americans turning 65 in 2024. While many are part of a mass exodus from the workforce, not all of them will retire: some can't afford to retire. Retirement costs. Stopping Work There is also a growing group of college-educated baby boomers who want to keep their jobs even though they have the financial means for retirement.
However, as the baby boom generation reaches what experts call “Peak area 65It is expected that the number of retirees will jump from about 10,000 per day over the past decade to More than 11,200According to the Retirement Income Institute of the Lifetime Income Alliance. The increase in retirees is It is expected to continue until 2027.
While boomers have had decades to save, invest, and prepare for their next chapter, there are some strategies they may have overlooked. For those approaching retirement, here are five tips from financial advisors to maximize money — and longevity — in your golden years.
1. Think about a Roth conversion
Most people are familiar with 401(k)s and IRAs, but there are other retirement accounts that belong in your financial plan, such as a Roth IRA. Although it is usually thought that it is best for younger workers because Income ceiling on contributionsyou can still get Roth benefits even if you make too much money to contribute to one directly, via a Roth conversion.
As the name suggests, the strategy involves converting your traditional IRA to a Roth IRA. When you make a conversion, you are essentially moving money from a pre-tax vehicle to an after-tax vehicle; You will pay taxes on the money now at the current rate, and then it will become tax-free.
Consultants say the benefits are many. You'll enjoy tax-free withdrawals in retirement (assuming you meet other requirements) and there are no required minimum distributions during your lifetime. This is a good way to add tax diversification to your financial plan and reduce your lifetime tax bill.
2. Optimize your taxable account
Speaking of which, tax diversification can go beyond 401(k)s and IRAs. Taxable accounts also play an important role, and it's important to know which ones to tap first.
“With a 401(k) or IRA, it's all pre-tax and subject to income tax, so the federal and state government may own about 30% to 50% of those accounts,” says Scott Bishop, a Texan. Certified Financial Planner (CFP). “If the money is in a taxable Roth IRA or brokerage account, the results may be different.”
A taxable account doesn't have the tax benefits of a retirement account, but it also doesn't have the limitations they do. It allows you to invest for the future, but without contribution limits, withdrawal penalties, required distributions, etc.
It's especially helpful to have some money in a brokerage account if you're not sure what tax bracket you'll fall into when you retire; Withdrawals from a taxable account are subject to tax Capital gains rate, while money taken from a 401(k) is taxed at your ordinary income tax rate (which is likely higher). With a taxable account, only the gains are taxed, while the entire withdrawal from a 401(k) is taxed. Having a group of accounts allows you to develop a strategic withdrawal strategy.
“Just as you diversify your investments to help address uncertainty in the markets, diversifying the tax treatment of your accounts can help you navigate uncertainty in the tax landscape and manage your income in retirement,” Judith Ward, CFP, wrote for T. Rowe Price.
And of course, you'll need to set aside a chunk of money in cash, in case of an emergency. Wes Battle, a CFP based in Maryland, says the ideal amount is six months' expenses.
3. Delay Social Security
Although some people are eligible to start receiving Social Security benefits as early as age 62, financial advisors say it's better to hold off doing so until age 70, or at least until you reach what's called full retirement age, if It was possible. This will increase the interest amount and help you lower your taxable income, because you will have spent some of your savings from your other retirement accounts first. “This is one of the most overlooked opportunities in financial planning,” says Andy Baxley, an Illinois financial planner.
Your full retirement age depends on your date of birth. For those born in 1960 or later, the full retirement age is 67. For those born between 1955 and the end of 1959, it is between 66 and 2 months and 66 and 10 months. If you were born before 1955, you are (and are) 66 years old. Delaying until age 70 means you can earn Credit “Delayed Retirement.”Which brings you a higher benefit.
Even if 70 isn't likely, delaying it even by a few years or months can make a big difference in the size of the check you'll end up getting. You can view your expected benefit amount on your annual Social Security statement, which you can view at Social Security Administration website.
4. Set your budget
Many people (and the financial media) focus on hitting the magic retirement savings “number,” whether it's $1 million, $1.46 million, or more. But the most important numbers that soon-to-be retirees should focus on are actually those in their retirement budget, Bishop says. It can be divided into the following categories:
- Fixed price. This is mortgage or rent, insurance, property taxes, food, health care, etc.
- Estimated costs. This includes estimated expenses for fun things you'll do in retirement, including travel, dining out, etc.
- Planned future costs. Fixed and discretionary costs may make up most of your budget most of the time, but you may have a problem if you don't anticipate other expenses, such as home repair costs, new cars, long-term care, etc.
Bishop says the budget “has to be thoughtful and conservative.” An advisor can help you think about incidental costs and formulate a cost that works for your family.
However, your budget can always change. Sandy Weaver, a CFP in Kansas, suggests testing your monthly withdrawal amount for about six months, then readjusting as needed. Expenses change in retirement, and it's okay for your plan to change, too.
“Don't sweat the small stuff,” Weaver says. “Retirement is long, (potentially) more than 30 years, so if you mess up with finances for a year or two, you can get them back on track.”
5. Make a “non-retirement plan”
Finally, getting the financial and tax strategies right is important, advisors say, as is making the most of your retirement days: You have a financial plan, but you'll need a comprehensive life plan, too. How will you keep your mind and body healthy? Are you interested in volunteer work? Would a part-time job be better? Do you want to help with your grandchildren? Without some forethought, it may be more difficult than you think to easily fill your time.
One strategy is to create what's called a non-retirement plan. Mark Walton, a Peabody Award-winning journalist, outlined it in his book Unretired: How the Most Effective People Live Happily Ever AfterThis includes thinking about what fascinates you and what you can devote your time to in retirement. The work can be (full or part-time), although it does not have to be.
“Soon-to-be retirees should keep in mind that those who retire into something are more successful than those who retire from nothing,” says Howard Pressman, a CFP professional based in Virginia. “Twenty-four hours is a long time if you're sitting on the porch yelling at the neighborhood kids to stay off your lawn.”
He suggests asking yourself questions including, Where will you live? How will you stay involved? How do you stay active? How can you make up for the social connections lost from work?
“The clearer this vision is, the easier the transition becomes,” Pressman says. “There is a big difference between a financially secure retirement and a happy retirement.”