You've reached retirement! And after saving for years for this epic goal, you want a fun and relaxing experience.
You've done all that you can in terms of saving, but you may be wondering if it's enough. Here are three crucial things you can do once you've reached retirement age that will help make your money last as long as possible.
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1. Taking Social Security at the wrong time
Your full retirement age is either 66, 67, or somewhere in between, depending on when you were born. But you can take Social Security as early as age 62 or delay it as late as age 70. Taking your monthly payment earlier than your full retirement age will give you a lower amount, while delaying it will give you a larger amount. This can have a big effect on the amount of income you collect from the system over your lifetime.
For example, if your full retirement benefit at age 66 is $1,500, your reduced benefit at age 62 is $1,050, and your benefit for delaying until 70 is $1,980, the best time for you to take it can depend upon how long you live. If you live to age 75, taking the benefit at age 62 will give you $163,800 in lifetime income, your full retirement benefit will give you $162,000, and your delayed benefit will pay you $118,800. But if you live until age 85, your early benefit will pay you $289,800, your full retirement benefit will pay you $342,000, and your delayed benefit will pay you $356,400 over your lifetime.
If you live a long life, the accumulation of these payments can add up to more if you delay and wait for the larger payment. The shorter your life expectancy, the more sense starting your payments while you're younger makes. And while you can't predict how long you will live, you can estimate your life expectancy by taking into account different factors like your gender, current age, and family history.
2. Not controlling expenses in retirement
A lot of retirement planning focus is placed on how much you save. But equally as important in making sure you don't outlive your savings is how much you spend in retirement.
If you save $1,000,000, earn 7% on average every year, and have $6,000 in expenses monthly, your money could last you 26 years in retirement. If, however, you have $7,000 in monthly expenses, your money could only last you 17 years. $10,000 in monthly expenses, and your money could run out after just 11 years.
You can help control your expenses by reducing how much you spend in retirement. You can create a budget that will help you track your monthly spending. Categorizing those purchases as things you want versus things that you need can eliminate nonessential purchases as much as possible. You can also work toward decreasing variable bills like your heat or electricity by learning ways that you can conserve energy better.
3. Investing too aggressively or too conservatively
You may think that retirement means taking all of your investments and converting them to cash. But you could live 20 years or longer in retirement. Doing this may help you avoid losing money in the event of a stock market crash, but may make keeping up with inflation harder. If the price of the things you buy gets more expensive over time, your purchasing power decreases, which could make your retirement savings run out sooner.
Leaving your money invested will help it continue growing and could help you avoid this pitfall. But you shouldn't be invested too aggressively either. When you are working, if your accounts lose value because of a bear market, you probably have plenty of time to regain these losses. When you are retired, you may have less time, and you're taking money from your account now instead of adding to it. This can exaggerate how much your account value declines.
You can determine how much risk you can handle by taking a simple quiz. By learning the answers to questions like how you've reacted to stock market volatility in the past and when you will need your money, you can figure out which asset allocation model is best for you and your retirement assets.
You've worked hard to get to retirement, but ensuring that it is stress-free means that you should stay diligent -- even after you've stopped working. Small moves like researching when you should take Social Security before actually taking it, making sure you can afford your lifestyle, and regularly reviewing your risk tolerances can go a long way in making sure you have the retirement of your dreams.
