For every five years longer a retiree lives, he or she spends about 15 percent less on average. This means that people in their 70s spend about half of what they do in their 50s. Even with the ramp-up in medical expenses that often comes later in life, retirees still tend to spend less as they progress through what is termed the three phases of retirement.
One study found that nearly 40 percent of retirees spend an above average amount on food and beverages (“foodies”), 30 percent tend to spend more on home-related expenses (“homebodies”) and 5 percent are travel enthusiasts (“globetrotters”).
These are some categories by which to measure your own spending objectives in retirement, as they can help you establish a retirement income withdrawal level that can help meet your lifestyle goals, but note that they may also curb downward and change as you get older.
While identifying the typical spending behaviors of retirees can be helpful when considering your own retirement income, every person’s situation is different. For example, someone who experiences a health care issue early on may find that their lifestyle spending decreases faster than a retiree who is a foodie or homebody.
Retirement should be a time to take a long-needed break — from working, from worrying and, hopefully, from scrimping and saving. You hope to be in a place in which you can spend for what you need, plus a little more now and then for your passions, whether that’s golf, the grandkids or the Grand Caymans.
As you build a financial strategy, consider each component. It may be effective to diversify your income sources among an array of sources, such as Social Security, pension and an annuity, along with options that may provide growth potential to generate cash flow to help pay for discretionary living expenses.
This calls for reviewing a number of factors, such as when to begin drawing Social Security. Recognize that each spouse may benefit from a separate strategy. If you have an employer-sponsored retirement plan, review plan rules on partial distributions once you’ve retired, as some can be quite restrictive and may require repositioning of those assets.
Before you finalize any distribution strategy, carefully review the tax status of each account you own to determine when to withdraw money so that you don’t tip yourself into a higher tax bracket in any one year. You should talk to a financial advisor and tax professional about how to create a tax-efficient retirement income distribution strategy.
The content provided here is designed to provide general information on the subjects covered. It is not, however, intended to provide specific legal or tax advice. Contact us at info@securedretirements.com or call us at (952) 460-3260 to schedule a time to discuss your financial situation and the potential role of investments in your financial strategy.
Investing in a traditional IRA while earning a paycheck is a good way to defer income taxes on the money you contribute. Currently, taxpayers who aren’t covered by a retirement plan at work may deduct the full amount of their annual contributions to a traditional IRA.
Studies show some people simply are wired to wake up early in the morning while others are night owls. The difference has to do with what time of day you have the most energy, focus and creativity.
If you own an IRA, SIMPLE IRA, SEP IRA or retirement plan account, you must begin taking a required minimum distribution (RMD) each year once you reach age 70 ½. If you have multiple IRA accounts, you must calculate the distribution required for each IRA separately, but you are permitted to withdraw the combined amount from just one of your accounts.
We frequently resolve to reinvent ourselves in the new year — exercise more, eat healthier, read more or save more.
Stocks may have a reputation for being riskier than bonds, but you should also consider the risk that investing only in bonds may not accumulate enough money to finance all your aspirations in retirement.