Crafting a Sustainable Retirement Budget
As you approach retirement, it’s essential to have a clear understanding of your financial situation and create a budget that will sustain you throughout your golden years. By age 67, your retirement budget is largely determined by the savings and benefits you’ve accumulated during your working life.
Assessing Your Income Streams
Let’s take a closer look at an example of an individual with $900,000 in their 401(k), $200,000 in a savings account, and $2,400 per month in Social Security benefits. This combination of income streams will significantly impact your retirement budget.
Maximizing Social Security Benefits
Your Social Security benefits are a known quantity with some flexibility. By waiting to collect your benefits, you can increase your lifetime benefits by a small amount each month. This increase can be substantial, potentially reaching 124% of your full benefits at age 70. In this case, waiting to collect benefits could result in an additional $7,912 per year.
Managing Your Investments
With a combined $1.1 million in cash and investments, your retirement budget will depend on how you choose to manage that money. You’ll need to strike a balance between risk and reward, considering options such as aggressive investing, lifetime annuities, or a balanced approach seeking returns between 6% and 8%. Each approach comes with its own set of tradeoffs, and it’s essential to weigh your options carefully.
The Role of Taxes in Retirement
As you plan your retirement budget, don’t forget to anticipate taxes. Your retirement income will have three separate tax statuses: income taxes on your 401(k) and assets, asset-specific taxes on profits or gains, and taxes on your Social Security benefits. These taxes will significantly reduce your spendable retirement budget, so it’s crucial to plan accordingly.
Required Minimum Distributions (RMDs)
Starting at age 73, you’ll need to take required minimum distributions (RMDs) from your 401(k) and any assets purchased with pre-tax money. Failure to take your RMDs will result in a significant tax penalty. A financial advisor can help you navigate RMD rules and develop a strategy to minimize taxes.
Finding the Right Financial Advisor
Crafting a sustainable retirement budget requires careful consideration of multiple factors. A financial advisor can help you weigh your tradeoffs, manage your investments, and develop a tax strategy that works for you. With the right guidance, you can create a retirement budget that meets your needs and ensures a comfortable lifestyle.
Getting Started
If you’re ready to find a financial advisor who can help you achieve your retirement goals, start by using a free tool to match with a vetted advisor in your area. Take the first step towards securing your financial future today.
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