The retirement landscape is changing. Between health care costs, rising life expectancies and uncertainty in the solvency of government benefit programs such as Social Security, it's more important than ever to be vigilant in your retirement strategy. The fact that you’re retired doesn't mean your planning days are over. After all, you might have spent years building and revisiting your strategy to stay on track.
Did You Know?
At age 73 the IRS requires you to start taking distributions from certain retirement accounts.
The rules of smart household finance don't change because you've left the workforce. Now that you've retired, you may find that certain expenses were lower or higher than expected. It's time to make sure your budget is retirement-friendly.
Be aware of surprise expenses.
Healthcare will likely factor heavily into your retirement plans. You'll probably want to plan for increased doctor visits, prescription drug costs, hospital costs, and long-term care.
Even if your mortgage is paid off, it's important to consider property taxes, monthly utilities, and maintenance into your expense plan.
Now that you're retired, you may have more time to do the things you always wanted to do, such as travel and pursue hobbies. Travel is often one of the largest unexpected increased costs in retirement. A good plan will help maximize your cash flow and allow you to cross off your bucket list at the same time.
Taxes will remain a certainty in retirement, so it's a good idea to plan for them early. Social Security benefits, annuities, 401(k) and traditional IRAs and SEP IRAs are all subject to income tax, while Roth withdrawals are generally tax-free. How you access these accounts can make a big difference in how much tax you pay. Seniors are also eligible for tax breaks, so you may want to consult a professional for filing assistance.
It is not unusual to experience unexpected expenses, such as replacing old appliances, cars, and other big-ticket household items. It's important for your financial plan to account for unexpected expenses.
Once you've audited your expenses, the next step is to prioritize them in terms of needs, wants and wishes.
Needs include housing, food, healthcare, and utilities.
Wants include travel, hobbies, a second home, and non-essential expenses.
Wishes include aspirational goals such as legacy giving.
By prioritizing your expenses, you can better manage them during different economic environments and help monitor your spending activities. It can also help you create a spending policy statement, a written plan of how you plan on using your income during retirement. Having something written can help you stay committed and provide a benchmark for you to check in and adjust as your retirement plan changes.
The other aspect to a smart budget involves itemizing your income sources. Make sure you are getting the most from all types of regular, and fixed sources of income, including:
Get the most from your Social Security benefits. If you are older than 62 but under the Full Retirement Age (FRA), you are eligible to receive at least part of your Social Security benefits. The longer you delay Social Security benefits until age 70, the more monthly income you will receive later on. Key factors to consider before applying for Social Security benefits include age, health, life expectancy, spousal earnings and other sources of income.
Outside of delaying benefits, there are also targeted strategies for taking Social Security, such as the file and suspend strategy for married couples. Knowing your options can help you optimize your cash flow from Social Security.
Fixed sources of income
Review any annuity or pension streams of income to ensure you can count on them. You may have a pension from a company where you worked for 20 years, but what about a previous job that you worked in for only five years? Don’t leave any money on the table.
Once you have your fixed sources of income set up, you might consider having them all deposited into a single account that you use to pay your expenses. This will easily help you monitor expenses and your cash flow.
Your retirement accounts can bridge the gap between your expenses and fixed income sources. Now is the time to plan a cash flow strategy to maximize the distribution of your retirement assets. One option for streamlining your retirement accounts is to rollover employer plans into a Janus Henderson IRA. It can also centralize multiple account streams into a single source.
However, before moving your retirement assets, be sure to consider all available options and the applicable fees and features of each option, such as leaving your assets with your former employer plan, rolling them over to an IRA or cashing out.
Controlling your cash flow is a smart way to maximize investment income in retirement. Consider these tips:
Maximize Social Security.
While you're free to retire and take Social Security as early as age 62, the longer you delay this benefit, the larger it becomes, until the age of 70. Spouses can also take advantage of a “file and suspend strategy.”
What is File and Suspend?
Under current law, a spouse cannot claim a spousal benefit unless the main beneficiary claims benefits first. However, once Full Retirement Age (FRA) is reached, a beneficiary can file for benefits and immediately suspend receipt of those benefits until a future date. By doing this, the spouse can claim a spousal benefit and the main beneficiary can let his or her own retirement benefit grow at 8% per year. The file and suspend strategy is also potentially useful for couples in which only one person has reached FRA. In this case, the benefit of the main beneficiary will continue to grow, but the spouse's benefit will not.
Use asset location for tax-efficient withdrawals.
If you're like most retirees, your assets are in a variety of accounts. Tapping them in the right sequence could extend the life of your portfolio. You can withdraw from your non-retirement accounts first. The long-term capital gains rate could receive a lower tax rate versus withdrawing from a traditional retirement account, where income is generally taxed at an ordinary income rate. Using a Roth IRA to augment your traditional sources of retirement income may also limit the amount of taxes you pay when you are distributing assets.
Consider time segmentation.
Time segmentation matches your withdrawal types with income needs. In typical time-segmentation plans, cash and conservative investments are used first. As time goes on, assets are moved gradually from aggressive growth accounts into more moderate and then more conservative investments. Assets in more aggressive-growth accounts are put to work early on so these assets have an opportunity to grow.
Plan today. Enjoy tomorrow.
There are many ways to plan for smarter cash flow. Learn more about cash flow strategies in Retirement Insights.
Just because you're done working doesn't mean you have to be done investing. In fact, your retirement years can be a great time to continue on your financial path. Here are a few considerations:
Consider investing your Required Minimum Distribution (RMD).
When you turn age 72, the IRS requires you to start taking RMDs from your tax-deferred accounts like traditional IRAs. If you don't take an RMD, you could be subject to an excise tax of 50% from the IRS. But that doesn't mean your RMD can't stay invested in the market. It's easy to put that distribution into another non-retirement investment account that matches your risk tolerance but offers growth potential. To learn more on some other strategies for your RMD read Janus Henderson's Required Minimum Distributions guide.
Consider Janus Henderson Fixed Income.
Janus Henderson fixed income funds can help you find income while keeping a focus on capital preservation. Visit our Fund pages to find a fixed income fund that's right for you.
Continue on Your Financial Path
Your retirement years are a great time to remain vigilant in your investment strategy. Consider reinvesting your RMD into another account. Call a Janus Henderson Representative at 800.525.1093 to find out how.
You are now leaving our site and entering a website not operated by or affiliated with Janus Henderson Investors. While we aim to point you to useful external websites, we cannot be responsible for their content, opinions, advice or accuracy, even if you utilise the services on the linked site to invest in our products.
You should review the Terms and Conditions of third party websites and contact the operators of such sites if you have any queries.
You are now leaving Janus Henderson's website and will be redirected to the website of the Securities and Exchange Commission (the "SEC"). Money market funds are required to provide the SEC with a monthly electronic filing of more detailed portfolio holdings information on Form N-MFP.
Janus Henderson is not responsible for the content, accuracy or timeliness and does not make any warranties, express or implied, with regard to the information obtained from other websites. This link should not be construed as either a recommendation or offer to by or sell any securities.