The so-called silver tsunami of retirees begins to peak this year as a record 4.1 million Americans turn 65 in 2024. While many are part of the labor force exodus, not all will retire: some cannot afford to. will stop working, and there are a growing number of college-educated baby boomers who want to keep their jobs despite having the financial means to retire.
However, as baby boomers reach what experts callpeak 65 zoneThe number of people retiring is expected to rise from about 10,000 per day over the past decade to more than 11,200According to the Retirement Income Institute of the Alliance for Lifetime Income. Sharp increase in the number of pensioners expected to last until 2027.
While boomers have had decades to save, invest and prepare for the next chapter, there are a few strategies they may have overlooked. For those approaching retirement, here are five tips from financial advisors to help maximize your money and longevity in your golden years.
1. Consider Roth conversion
Most people are familiar with 401(k)s and IRAs, but there are other retirement accounts that fit into your financial plan, such as a Roth IRA. Although they are generally considered to be best suited for younger workers due to contribution income limityou can still get the benefits of a Roth, even if you earn too much to contribute directly, through a Roth conversion.
As the name suggests, the strategy involves converting your traditional IRA to a Roth IRA. When you make a conversion, you are essentially moving funds from a pre-tax vehicle to a post-tax vehicle; you’ll pay taxes on that money now at the current rate, and then it will grow tax-free.
According to consultants, the benefits are many. After you retire, you’ll be able to withdraw funds tax-free (as long as you meet other requirements) and won’t take required minimum distributions during your lifetime. This is a good way to add tax diversification to your financial plan and reduce your lifetime tax bills.
2. Optimize your taxable account
Speaking of which, tax diversification can extend beyond 401(k)s and IRAs. Taxable accounts also play an important role, and it is important to know which ones to use first.
“With a 401(k) or IRA, all of these accounts are pre-tax and subject to income taxes, so the federal and state governments can ‘own’ about 30-50% of these accounts,” says Scott Bishop, a Texas resident. Certified Financial Planner (CFP). “If the money is in a Roth IRA or a taxable brokerage account, the results may be different.”
A taxable account doesn’t have the tax benefits of a retirement account, but it also doesn’t have the limitations that it does. It allows you to invest for the future, but without restrictions on deposits, penalties for withdrawals, mandatory payments, and so on.
It’s especially helpful to have some money in a brokerage account if you’re not sure what tax bracket you’ll be in when you retire; Withdrawals from a taxable account are taxed at the rate capital gains rate, while money taken out of a 401(k) is taxed at your ordinary income tax rate (which will likely be higher). And with a taxable account, only the earnings are taxed, whereas all withdrawals from the 401(k) account are taxed. Having multiple accounts allows you to develop a strategic withdrawal strategy.
“Just as you diversify your investments to cope with uncertain markets, diversifying the tax treatment of your accounts can help you overcome an uncertain tax situation and manage your income in retirement,” writes Judith Ward, CFP, for T. Rowe Price.
And, of course, you’ll need to set aside some cash in case of an emergency. Wes Battle, a CFP in Maryland, says the ideal amount is six months’ worth of expenses.
3. Social Security Delay
While some people are eligible to start collecting Social Security benefits as early as age 62, financial advisors say it’s best to wait until age 70, or at least until you reach what’s called full retirement age, if at all possible. This will increase your benefit amount and help you lower your taxable income because you’ll spend some of your savings from other retirement accounts first. “This is one of the most overlooked financial planning opportunities,” says Andy Baxley, CFP in Illinois.
Your full retirement age depends on when you were born. For those born in 1960 or later, the full retirement age is 67. For those born between 1955 and the end of 1959, it is 66 to 2 months and 66 to 10 months. If you were born before 1955, that’s 66 (and you’ve already reached it). Deferment until age 70 means you can earn delayed retirement loanwhich gives you higher benefits.
Even if 70 is unlikely, delaying it even by a few years or months can make a significant difference in the size of the check you ultimately receive. You can view your projected benefit amount on your Social Security annual report, which you can view at Social Security Administration website.
4. Fine-tune your budget
Many people (and the financial media) focus on reaching the magic retirement savings “number,” be it $1 million, $1.46 million or more. But the more important numbers for people close to retirement are actually their retirement budget numbers, Bishop says. They can be divided into the following categories:
- Fixed costs. This is your mortgage or rent, insurance, property taxes, food, healthcare, and so on.
- Discretionary spending. This includes estimated expenses for entertainment activities you will enjoy in retirement, including travel, dining out, etc.
- Planned future costs. Fixed and discretionary expenses can make up the majority of your budget most of the time, but you may be in trouble if you don’t plan for other expenses such as home renovations, new cars, long-term care, etc.
The budget “needs to be thoughtful and conservative,” Bishop says. A consultant can help you think through unexpected expenses and develop an option that works for your family.
However, your budget can always change. Sandy Weaver, a CFP in Kansas, suggests testing your monthly withdrawal amount for about six months and then adjusting it as needed. As you retire, expenses change, and your plan may change, too.
“Don’t sweat the small stuff,” Weaver says. “The retirement stage is long, [potentially] 30-plus years, so if you get your finances wrong for a year or two, you can get things back on track.”
5. Make a “retirement plan”
Finally, advisors say that while proper financial planning and tax strategy are important, it’s equally important to make the most of your retirement: You have a financial plan, but you’ll also need a holistic life plan. How will you keep your mind and body healthy? Are you interested in volunteering? Maybe it’s better to work part-time? Want to help with your grandchildren? Without some forethought, filling your time can be harder than you think.
One strategy is to create what is called a pension plan. Featured by Peabody Award-winning journalist Mark Walton in his book Non-Retirees: How Highly Effective People Live Happily Ever AfterThis involves thinking about what you’re passionate about and what you might want to dedicate your time to in retirement. This may be a job (full-time or part-time), although it is not required.
“Prospective retirees should remember that those who retire from something are more successful than those who retire from something,” says Howard Pressman, a CFP in Virginia. “Twenty-four hours is a long time if you’re just sitting on your porch yelling at the neighborhood kids to stay off your lawn.”
He suggests asking yourself questions including: Where will you live? How will you stay involved? How will you stay active? How will you make up for lost social connections at work?
“The clearer that vision is, the easier the transition will be,” Pressman says. “There is a big difference between a financially secure retirement and a happy retirement.”