About half of Americans have some sort of retirement account, according to the Federal Reserve Bank’s 2019 Survey of Consumer Finances, and the median value of that 401(k) or individual retirement account runs around $65,000.
The average American, who retires around the age of 63 or 64 and lives until about age 78, can spend 15 or more years in retirement. That means that, along with Social Security benefits, a possible pension, and any other savings, that retirement fund shouldn’t be spent all at one time — no matter how much is squirreled away. Here’s how to make the most of your retirement savings.
Take a look at how much you’ll need to cover your daily living expenses. This includes rent, mortgage, utilities, debt payments, and other day-to-day costs. Then consider what you hope to do during your golden years. Do you have vacation plans? Is there a hobby you want to explore? Are you desperate to spoil those grandchildren?
The answers to these questions, combined with how much money you have saved up or have access to through Social Security or other savings, will inform your decisions about how you’ll manage your money during retirement.
Exactly when you retire can have a big impact on how much you’ll get in Social Security benefits. U.S. workers qualify for Social Security at the age of 62, but you won’t start earning your full retirement benefits until the age of 66.
So, if you start collecting at age 62, your total benefit will be reduced by 25%. If you start at age 64, it’s cut by 13.3%, for example. The longer you can hold off on taking Social Security, the more you’ll have to live on once you’re no longer working. We covered how to decide when it’s time to take Social Security in an earlier article.
When it’s time to retire, you may want to call it quits entirely, but an easy part-time job could bring in enough spending money to take the pressure off your retirement savings and get you out of the house. A few hundred dollars a month can cover basics such as your phone bill or monthly food costs. And you won’t be the only retiree working a part-time gig. In fact, according to AARP, workers aged 65 and up are more than twice as likely to work part-time as workers aged 25 to 64. AARP lists the top 25 part-time jobs for retirees.
It may be tempting to start withdrawing big chunks of your retirement savings after you’ve spent so many years carefully saving your money. Don’t. You may be enjoying your retirement years for decades, and that money could make the difference between a comfortable retirement and a stressful one. Generally, financial planners advise retirees to withdraw just 4% or 5% from their retirement savings when they first retire, according to Fidelity. From there, the total can be adjusted for inflation each year going forward.
After a lifetime of working, retirement should be a joyful time when you can slow down, spend more time with family, and explore your interests. But to enjoy it, you’ll need a plan — for how you want to spend it and how you’ll cover the costs.
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