Financial Rules to Help You Stay Safe in Retirement
Your retirement days are finally here. The period of your life when you get to spend your time just precisely as you want to. In the absence of rules or any restrictive guidelines, it isn’t hard to conclude that retirement implies living on your terms. However, it is advisable to keep it in mind that while you have your time to spend as you desire, there are specific financial rules you ought to keep in mind. Taking cognizance of these rules will ensure that you do not end up broke in your retirement years. Some of these rules include:
1. Take Advantage of The Benefits of Your Social Security
For most retirees, the Social Security constitutes a considerable percentage of their retirement income. In fact, experts of Center on Longevity of Stanford University regard the Social security as the ideal source of retirement income based on the fact that it is unaffected by inflation. Also, it also keeps existing even after the death of the beneficiary.
As such, you should endeavor to enjoy the highest possible benefits from your social security. The Stanford experts analyzed about 292 scenarios for retirement funding and discovered that the most appropriate age to claim the benefits of Social Security is 70.
Delaying till one turns 70 may be a smart idea because the benefits accruing increase by 8% for each year delayed after full retirement age. As such, if you choose to retire at 70 rather than at 67, then you could receive about 24% higher yearly Security income. There are different guides on Social Security benefits you can use to determine which best suits you.
2. Invest a Percentage of Your Savings
Your retirement years is one period to get increasingly conservative when it comes to investing. However, studies reveal that for several retirees, the thought of putting all their money in a safe investment like bonds makes no sense. This is because they consider the returns on such safe investments to be extremely low and also see the severe risk of quickly going out of funds.
Some analysts have advised that to be certain you are taking the right level of risk, subtract your current age from 100 or even 110 to determine the percentage of your assets you can still afford to invest in stocks. For instance, if you are 65 years, you would have something between 35%-45% of your funds invested in stocks, while if you are 85 years, it is advisable to drop the percentage to 15%-25%.
3. Build a Smart Withdrawal Plan
Since you need to invest a portion of your funds, you will need to supplement your Social Security by withdrawing money. However, it may be very difficult to determine the exact amount to take out. While you do not withdraw an excess amount that leaves you broke, you do not want to live on a subsistence income either while having excess money invested. The safest way to determine the ideal amount to withdraw is to stick to living off the interest without touching the principal.
However, most retirees consider that to be too conservative. To work around this, a couple of experts recommend the use of the 4% rule. The rule posits that retirees should withdraw 4% of the invested assets in the first year of retirement and subsequently increase the withdrawals from 4% to keep up with inflationary factors.
It is, however, quite unfortunate that research shows that there is approximately 57% chance that a retiree will run out of funds by sticking to the 4% rule. This is based on the interest rates which are currently lower than historic leveled into consideration. A more dynamic approach is to withdraw like 3.13% of the retirement savings when you are 65 years and over time gradually raise your withdrawals.
4. Remember your RMDs
Do not take an amount below your required minimum savings when you are to withdraw. RMDs are needed for specific retirement accounts that are tax-advantaged, e.g., IRA’s and 401(k)s. Thus, you should begin taking as soon as you are 70 1/2. Your life expectancy and investment account balance determine the amount you need to withdraw.
5. Avoid Requests likely to Trump your Financial Security
Requests may come from different angles such as your kids needing help with college fees or your adult children or relatives needing assistance. It isn’t a bad thing to assist your relatives, but endeavor not to spend all your retirement savings on that. Do not allow those expenses to jeopardize your financial stability and leave you broke.
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