All those investment vehicles you have come with a puzzling array of distribution and taxation rules. There are also do’s and don’ts for tapping into government programs like Medicare and Social Security. Plus, you should consider how to stretch your retirement resources to the limit.
As it stands, you may have a 401(k) account (or two, if your spouse has one), a Traditional Individual Retirement Account, a Roth IRA, maybe some annuities and various other savings vehicles. What money should you use first? It depends on your age, overall income and other factors. You must pay taxes on withdrawals from the Traditional IRA and the 401(k). Generally, you should draw from those sources when your income is the lowest. In contrast, you put post-tax money in the Roth IRA, so withdrawals are tax free. As for the 401(k), you must begin taking withdrawals upon reaching the age of 70 ½. Still confused? It’s probably best to contact your accountant or financial advisor.
Then there’s Social Security. You can start collecting at age 62. But you will receive less each month than if you wait for full benefits, which kick in at age 66 or 67 (depending on when you were born). However, in this case, “full” does not mean “maximum.” Hold off until age 70, and you’ll get bonus benefits each year. Still, depending on your other retirement savings, health and family situation, there may be reasons to collect Social Security earlier rather than later. The Social Security Administration website can help you sort through the options.
There’s another government program that affects most seniors. Retirees should enroll in Medicare as soon as possible after turning 65 to take advantage of lower cost medical care and other benefits. There’s a fairly narrow window each year for Medicare enrollment, so do your research and be prepared to act.
No matter how much they’ve saved, many seniors find their incomes reduced upon retirement. It goes without saying they should take advantage of “senior discounts” at restaurants and retailers, and museums and movies. Organizations such as AARP can provide long lists of possible savings.
There are two other ways seniors can economize. With no more daily commute, some couples choose to get rid of one of their vehicles. This can save thousands of dollars a year in gas, repairs, registration costs and insurance premiums. Down-sizing your home is another option. Even if you’ve paid off your mortgage, bigger homes usually mean bigger property tax bills and upkeep costs. If you are going to move, do some research on states – and communities – with the lowest tax rates.
Finally, if it just doesn’t look like your retirement savings are going to last as long as you had hoped, consider going back to work. Even in a low-key, part-time job can do a lot to help make ends meet.
After all, retirement isn’t the end of your productive life. It’s just a new chapter.