Building enough wealth to support yourself in retirement is a monumental achievement. But financial planning doesn’t stop when you’re no longer relying on a paycheck.
How you manage your money in retirement is as important as it was when you left your job.
Once you leave the workforce, it can be more difficult to bounce back from financial setbacks. You will need to stay in control of your finances to make sure your savings and retirement income last for the rest of your life.
Taking the following financial steps in retirement will help you not outlive your money.
1. Review estate planning documents
After you retire, it’s a good idea to review and update your estate planning documents.
One of the most important of these documents is your will. As Money Talks News founder Stacy Johnson explains in âDo I Really Need a Will? “:
âA will is simply a legal document that specifies what you want to do with your affairs after your death: your money, your property and – theoretically – even your children. What happens if you die without it? Simple: the state steps in and makes these decisions for you.
But life is full of changes. If you get married, divorced, inherit an estate, or buy a property, you may need to update the will to reflect your new situation. For example, the birth of a grandchild may prompt you to adjust beneficiaries.
Reviewing your will after you retire, and then periodically thereafter, can reassure you about the well-being of the heirs.
If you don’t have a will, use your new free time to make one. The process can be as simple as going online and using a service like Rocket Lawyer to generate a will.
Other estate planning documents to review – or create – after retirement may include living wills, power of attorney designations, and letters of intent.
2. Review your beneficiaries
Beneficiary designations are another aspect of estate planning that is essential to ensure that assets are distributed as you wish.
As we note in “8 documents essential to planning your estate”:
âWhen you buy life insurance or open a pension plan or bank account, you are often asked to name a beneficiary, which is the person you want to inherit the proceeds from when you die. These designations are powerful and they take precedence over instructions in a will.
So, as with your will, review your beneficiary designations when you retire, and then periodically throughout retirement.
Related: How To Become A Millionaire, Guaranteed
3. Prepare for your funeral
No one likes to contemplate your death, but it’s important to make sure your loved ones are financially ready for your funeral. By planning your own funeral, you will relieve the family of the burden of having to plan them during the bereavement.
There are many ways to reduce funeral costs, as we detail in “11 Ways to Make Funerals Affordable, But Not Cheap”. And by planning your funeral in advance, you’ll have plenty of time to explore all of the options.
4. Review your transportation options
If you have two cars but could get by with one, consider selling one to lower your insurance costs in retirement. If you’re retiring to an area where you could get by without owning a car, even better.
Older people tend to pay higher insurance premiums than younger people. Getting rid of a car will also save you thousands of dollars a year on other vehicle costs.
5. Build up your emergency fund
Having money set aside for unforeseen expenses is as important for retirees as it is for workers.
An emergency fund can help you avoid withdrawing money from your retirement savings prematurely, costing you not only the amount you withdraw, but any income the money might have generated.
Plus, once you stop working, you’ll have fewer opportunities to earn extra money to replace the money you take out of retirement accounts for emergency expenses.
6. Plan the minimum required distributions (RMD)
You cannot keep your money in retirement accounts indefinitely. Minimum Required Distributions (RMDs) are a minimum amount that the IRS requires you to withdraw from most types of retirement accounts each year, usually starting in the year you turn 72.
You must understand and prepare for your RMD obligations before you reach this age.
If you miss a RMD deadline, or if the distributions are not large enough, you may have to pay a 50% penalty tax on the amount of money you did not withdraw as required.
In addition, RMD is generally taxable income. So, they can impact your federal tax rate as well as the “combined income” formula that determines how taxable your Social Security benefits are.
The IRS notes that RMDs apply to:
- Traditional Individual Retirement Accounts (IRA)
- IRA SEP
- SINGLE IRA
- 401 (k) plans
- 403b) regimes
- 457 (b) schemes
- Incentive plans
- Other defined contribution plans
The amount of an RMD depends on your life expectancy and the balance in your retirement accounts. The IRS provides spreadsheets online to help you do calculations. The Securities and Exchange Commission’s Investor.gov website also offers an RMD calculator.
Yet withdrawing funds from retirement accounts can be complicated enough to warrant the help of a financial or tax advisor. If you decide to go this route, you can find a licensed trustee – an advisor needed to put your interests first – through the free Wealthramp service.
7. Consider giving up life insurance
One way to save money in retirement is to give up life insurance policies. This can be handy if you run out of people depending on your income.
The main goal of life insurance is to ensure that your loved ones have an income in the event of an unexpected death. For people raising families, life insurance is often essential to ensure that dependents have enough money to meet basic needs such as food and shelter, as well as the cost of education. higher.
However, if you’re retired, your kids are grown up, and you don’t have a spouse who depends on your income, you may decide that the money spent on life insurance would be better spent elsewhere.
“7 Reasons Why You Shouldn’t Get Life Insurance” takes a close look at this question.
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