Managing your retirement savings strategically

bill dominoes

Are you concerned that your retirement savings won’t last? You’re certainly not alone. A 2013 survey of people age 50-70 found that on average their savings were $250,000 short of what they’d need for the type of retirement they envisioned.

Fortunately, there are ways to s-t-r-e-t-c-h your savings so they have a better chance of always being there when you need them. Here are a few suggestions.

1. Work longer

Yes, you might not want to hear this. But working longer has multiple benefits: your income allows you to add more to your savings; you don’t have to dip into your savings quite as soon; and your savings don’t have to last quite as long.

Working longer doesn’t necessarily mean staying at your present job. Many people take advantage of the opportunity to pursue another career or switch to a part-time job. Got skills you’ve developed over your career? Maybe teaching or consulting is an option. Or maybe you can parlay your favorite hobby into a side business. Working for yourself part-time gives you more free time, while also bringing in income.

2. Reduce taxes.

Taxes are a major consideration when planning retirement finances. If you have a traditional IRA, you might consider switching to a Roth IRA. Although contributions are not tax-deductible, this disadvantage is often outweighed by the fact that you don’t have to pay taxes later on Roth IRA distributions. Particularly if you expect to be in a higher tax bracket later, a Roth IRA might make sense.

You could also consider relocating to a more tax-friendly state. Many states have no income tax, while others exempt retirement income such as pensions, Social Security benefits, or IRA distributions. Kiplinger has a state tax map enabling you to look up the tax policies of different states.

3. Manage your Social Security distributions

Deciding when to start taking Social Security benefits is an important, and highly individual, decision. Choosing to delaying benefits for a few years until your full retirement age, or even longer, can significantly increase the amount of your benefit. On the other hand, you have to go without those benefits during those few years, and you will receive your benefits for a shorter amount of time.

4. Divide your savings into “buckets”

The bucket strategy can help you ensure your savings will last throughout your retirement. The idea is that, when you retire, you divide your retirement savings into five-year buckets. Money you will need in the first few years of retirement go into conservative vehicles such as money-market funds, CDs, or short-term bonds. Money you plan to use later get put in more aggressive investments such as stocks and mutual funds, allowing them to grow until you’re ready to use them. As you use up each bucket, you go on to the next, moving it to the most conservative funds so it’s available for use.



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