RETIRING SOON? TIME TO REVIEW YOUR FINANCIAL STRATEGIES
In last week’s column, we talked about the necessity of taking a “big picture” approach to your financial situation. By looking at your needs at different stages of your life, you can develop a strategy containing elements that work together to help you achieve your goals. Last week, we discussed the importance of building financial assets and protecting your resources. Now, let’s consider an issue that will be important to you during your retirement years: Creating an income stream.
Creating a Retirement Income Stream
During your retirement years, you will need a significant percentage of your pre-retirement earnings to live on, but the actual amount will depend on your lifestyle. An investment professional can help you determine the annual income level that you will need.
Once you know how much income you’ll require, you’ll need to look at all available sources: your savings and investments, your retirement plans (401(k), IRA) and your Social Security. In determining how much to take from each source, and when, you’ll have to consider some different factors. For example, it might be wise to delay making withdrawals from your tax-advantaged retirement accounts for as long as possible, so that these funds can continue to grow tax-deferred. However, you must start taking required minimum distributions (RMDs) from your traditional IRA and 401(k) when you turn 70-1/2. (Roth IRAs don’t require you to begin taking RMDs at 70-1/2, or at any age.) You can withdraw more than the RMD, but not less.
As for Social Security, you can start receiving monthly checks at age 62, but your payments will be larger if you wait until your full retirement age, which can be between 65 to 67. For every year past your normal retirement age that you delay collecting benefits, you’ll get “bonus” payments, but once you reach 70, you’ll have earned the largest monthly payment you’re going to get.
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