Boomers: How to Spend Your Retirement Savings Wisely
Baby boomers are changing the norms of retirement and they want a more active retirement than previous generations. Having a strategic approach to withdrawing assets can help make your money last in retirement.
Life stage retirement planning series
Baby boomers are known for rewriting the rules at every stage of life, and now they’re changing the norms of retirement. They want a more active retirement than previous generations and they’re not slowing down anytime soon. Some Baby Boomers worry about outliving their savings, but they also want to enjoy what they’ve earned.
A Transamerica survey found that nearly 7 in 10 baby boomers plan to continue working past age 65. More than 1 in 3 expect they will need $1 million or more by the time they retire to feel financially secure. However, the median retirement savings balance for baby boomer workers is only $144,000.
Whatever your retirement goals and savings balance, you want to make sure your money lasts through retirement. You may also want to preserve funds to leave a legacy to your family or make charitable gifts. It helps to have a strategic approach and map out a plan of action before tapping retirement assets.
Steps for Wise Withdrawing
Try these tips to help your retirement savings last for as long as you need it:
- Review sources of income. Estimate the amounts you can expect from Social Security, your employer retirement plan, personal savings and any other sources, such as rental property or part-time employment. Look at the pros and cons of different payout options, if available. For example, if you take a lump sum distribution from your employer retirement plan, you might want to roll over retirement assets into an individual retirement account (IRA). Or, you might consider a fixed annuity for a steady income stream.1
- Estimate retirement expenses. You’ll need to create a retirement budget for living expenses, entertainment, family, travel, health care, taxes, insurance, etc. Track your current expenses and consider how your priorities may shift in retirement. Use budgeting tools such as a retirement expenses worksheet. Try out the retirement budget worksheet available at www.transamerica.com.
- Optimize Social Security benefits. Weigh your options for taking Social Security benefits sooner versus later. Your benefit amount increases if you wait until full retirement age (66 or 67) or past full retirement age (up to age 70). Use the retirement age calculator available at www.ssa.gov to see how your monthly benefits may go up or down based on your retirement age.
- Plan your withdrawal strategy. Your withdrawal rate should be based on inflation, your expected longevity and retirement lifestyle. Some experts recommend a 4% withdrawal rate, but there’s no one-size-fits-all solution. You should run the numbers with a financial advisor so you can be confident in your plan.
- Consider your tax situation. In general, it’s a good idea to spend down taxable accounts before tax-deferred retirement accounts and IRAs — but this is not always the case, and you should discuss any concerns with a tax advisor. It’s also wise to plan ahead for required minimum distributions (RMDs) from a traditional IRA or employer retirement plan when you reach age 72.2
- Rebalance accounts periodically. Keep your portfolio on track by choosing an appropriate mix of investments for your timeline, goals and risk tolerance. Rebalance your investment mix to make sure it’s still on target over time and as market conditions shift. Instead of rebalancing to reinvest, you might rebalance periodically as part of your asset withdrawal strategy.
What’s Your Strategy?
An investment professional at Amegy Bank can help you plan your retirement income strategy and make adjustments as needed over time. Contact us to learn more about wealth management services designed for every stage of your financial life. Check out our life stage retirement planning series for millennials feeling the pressure of the pandemic and GenXers behind on retirement savings.
This financial institution does not give tax advice. Consult your tax advisor for information specific to your situation.
1 Annuity guarantees depend on the financial strength and stability of the issuing insurance company. Annuities generally have fees and expenses that do not apply to other investment vehicles.
2 Note that you must begin required minimum distributions by April 1 of the year after the year you turn 72 or face tax penalties. Consult your tax advisor for more information.
The information provided is presented for general informational purposes only and does not constitute tax, legal, or business advice. Any views expressed in this article may not necessarily be those of Amegy Bank. Amegy Bank is a division of Zions Bancorporation, N.A. Member FDIC.