The Financially Savvy Retiree

Sunset on a beachToday, women have far more financial options and tools available to them in retirement. Using these tools can be the difference between realizing your dreams and running out of money during your retirement. Try these tips to help ensure that your savings last for the long haul.

Pay attention to your withdrawal rate

Keep a close eye on the rate at which you withdraw from your accounts during your early retirement years. In fact, the safe withdrawal rate may be less than you think. For example, if you’re facing a 20-/25-year retirement, your initial rate might be in the 4%/5% per year range, but if you’re looking to spend more than 30 years in retirement, you’ll likely have to cut back to 3%/4%. And if your assets take a nose dive, you may want to consider cutting back even more.

Manage your asset allocation

Investing conservatively can result in lower returns and running out of money during retirement. That’s why your asset allocation – the way you divide your portfolio among stocks, bonds and cash – still matters after you retire. It must match both your tolerance for risk and how much you need to continue living in retirement. Each investment type comes with different risk and growth characteristics. For example, if you have a large amount invested in stocks, you may have greater potential return – but also greater exposure to risk. Remember, however, that there is no guarantee that asset allocation reduces risk or increases returns.

Don’t forget about inflation

Because of inflation, prices – and your expenses – don’t stay the same over the years. Even a low inflation rate can severely impact a retirement budget if it’s not accounted for. To accurately estimate what your expenses will be throughout your retirement, you’ll need to predict how inflation will impact your current retirement account.

Make the most of your IRAs

There are two primary types of IRAs- Traditional IRAs and Roth IRAs.

Traditional IRARoth IRA
Comparison- Traditional IRA vs Roth IRA
Types of contributionsPretax contributionsAfter-tax contributions
Tax advantages for distributionsFederal taxes owed on your investment earnings and on your pretax contributions when you withdraw your moneyFederal taxes not owed on your investment earning or your withdrawals
Distributions (withdrawals)You must take withdrawals by April 1 following the year you reach the age of 70 ½You may take withdrawals at any time tax free and are not subject to mandatory distributions

So, should you convert your Traditional IRA to a Roth IRA to save on taxes? It depends on your tax bracket in retirement and when you’ll need to start receiving funds. If you think you’ll be in a lower tax bracket, it might make sense to keep a Traditional IRA. But if you want to start drawing on them early and save on taxes, the Roth might be a good choice. Be sure to discuss your options with your tax advisor prior to taking any action.

Find out if an annuity would work for you

An annuity is an insurance product that supplies retirement income and can be a key piece in your retirement strategy as it creates a stream of income in retirement.

When you make an investment in an annuity, you will receive payments on a future date or a series of dates. The income can be received monthly, quarterly, annually or all at once.

With annuities, you can opt to receive payments the rest of your life, or for a set amount of years. The amount you receive depends on whether you choose a guaranteed payout (fixed annuity) or a payout stream based on the performance of your annuity’s investments (variable annuities).

Work with a financial advisor who knows you

It’s important to work with an advisor who understands your needs and priorities. Take your time evaluating the planners available to you. And remember: If you share finances with another person, such as a spouse or partner, be sure he or she is involved in the process of choosing and then working with an advisor.

Move forward

Now is the time to take pleasure in what life has to offer, and to take a breather. With a little financial savvy – and a vigilant eye on your retirement accounts – you can enjoy the fruits of your labor.

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