You may end up having a few different sources of income available to you in retirement, including a monthly Social Security benefit and a nest egg you’ve worked hard to build. In fact, ideally, the latter will be a bigger source of income for you than the former.
But even if you have several different streams of income and are not dependent on Social Security alone, it is important to manage your money well in retirement. And following these rules will help you do just that.
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1. Respect a predefined withdrawal rate for your savings
You could retire with a few million dollars in your IRA or 401(k) plan and think, “Wow, I’m ready.” But not so fast. If you’re not careful, you could end up spending your savings at a faster rate than expected. That’s why, instead of taking withdrawals haphazardly, it’s best to do some math (either alone or with the help of a financial advisor) and arrive at a withdrawal rate that you’re on target with. comfortable.
For years, financial experts have said to use a 4% withdrawal rate as a baseline. Depending on your situation, this may be too aggressive or too conservative. The rate at which you land should depend on factors such as your lifespan and other sources of income you have. But it’s important to find that rate before you start tapping into your nest egg.
2. Know what taxes you are liable for
A number of your retirement income streams may be taxable. Withdrawals from the retirement plan, for example, are subject to taxes unless you house your savings in a Roth IRA or 401(k). And while you can use a HSA for any purpose without being penalized once you turn 65, non-medical withdrawals will be subject to tax.
You may also have to pay taxes on some of your Social Security benefits. Not only do some states tax benefits, but if your non-Social Security income is moderate, chances are your benefits will be subject to federal taxes. Be aware of your IRS liability so you can plan around it.
3. Follow a budget
When you’re on a fixed retirement income, you can’t spend money haphazardly. Instead, you should have a budget that you follow regularly to make sure you don’t go overboard.
To be clear, this budget can include fun things like travel and entertainment – you don’t have to limit yourself to just essential expenses. The key, however, is to track your expenses, know where your money is going all the time, and avoid going over your monthly allowances so you don’t have to take additional retirement plan withdrawals.
Whether money is scarce or plentiful in retirement, it’s important to stay on top of your finances. If you set a retirement rate for your nest egg early on, understand your tax liability, and stick to a budget, you’ll put yourself in an excellent position to increase your income, avoid financial stress, and fully enjoy your senior years. the most complete.
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