A Record 4.1 Million Americans May Retire This Year: Financial Planners Say These Five Steps to Take

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The so-called silver tsunami of retirees is beginning to peak this year, as a record 4.1 million Americans will turn 65 in 2024. While many are part of an exodus from the workforce, not all will retire: some cannot afford to stop working, and there is also a growing group of highly educated baby boomers who want to keep their jobs despite being over the moon. have financial resources to retire.

But now that baby boomers are reaching what experts call the “peak 65 zoneThe number of people retiring is expected to rise from around 10,000 per day to more than 11,200, according to the Retirement Income Institute of the Alliance for Lifetime Income. The number of retirees is increasing 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 nearing retirement, here are five tips from financial advisors to maximize their money (and longevity) in the golden years.

1. Consider one Roth conversion

Most people are familiar with 401(k)s and IRAs, but there are other retirement accounts that belong in your financial plan, such as a Roth IRA. Although they are usually thought to be best for younger workers because of the income ceiling on premiumsyou can still enjoy the benefits of a Roth, even if you earn too much to contribute directly to it, through a Roth conversion.

As the name implies, the strategy involves converting your traditional IRA into a Roth IRA. When you make the conversion, you are essentially moving money from a pre-tax vehicle to an after-tax vehicle; you now pay taxes on the money at your current rate, and then it becomes tax-free.

The benefits are many, say consultants. You’ll enjoy tax-free withdrawals in retirement (assuming you meet the other requirements) and won’t have to take required minimum distributions during your lifetime. This is a great way to add tax diversification to your financial plan and reduce your lifetime tax bill.

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2. Optimize your taxable account

Speaking of which, tax diversification can go beyond 401(k)s and IRAs. Taxable accounts also play an important role, and it’s important to know which ones to tap first.

“With a 401(k) or IRA, it’s all pre-tax and subject to income taxes, so the federal and state government can ‘own’ about 30% to 50% of those accounts,” says Scott Bishop, a Texan. based Certified Financial Planner (CFP). “If the money is in a Roth IRA or taxable brokerage account, the results may be different.”

A taxable account does not have the tax benefits of a retirement account, but it also does not have the limitations they do. This allows you to invest for the future, but without contribution limits, withdrawal penalties, mandatory distributions, and so on.

It’s especially useful to have some money in an investment account if you’re not sure what tax bracket you’ll be in when you retire; withdrawals from a taxable account are taxed at it capital gains rate, while money withdrawn from a 401(k) is taxed at your regular income tax rate (which will likely be higher). And with a taxable account, only the gains are taxed, while full withdrawals from a 401(k) are. With a range of accounts, you can develop a strategic withdrawal strategy.

“Just as you diversify your investments to address the uncertainty of the markets, diversifying the tax treatment of your accounts can help you weather the uncertainty of the tax landscape and manage your income in retirement,” writes Judith Ward , a CFP, for T. Rowe Price.

And of course, you’ll want to have some money set aside in cash, just in case of an emergency. Wes Battle, a CFP from Maryland, says the ideal amount is six months’ worth of expenses.

3. Delay Social Security

Although some people may qualify for Social Security benefits as early as age 62, financial advisors say it’s best to delay this until age 70, or at least until when you reach so-called full retirement age. if at all possible. That will increase the benefit amount and help you lower your taxable income, because you will have spent some of your savings from your other retirement accounts first. “This is one of the most overlooked opportunities in financial planning,” says Andy Baxley, a CFP in Illinois.

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The full retirement age depends on your date of birth. 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 between 66 and 2 months and 66 and 10 months. If you were born before 1955, that is 66 years old (and you have already reached that age). Delaying until age 70 means you have a deferred retirement creditgiving you a higher benefit.

Even if 70 isn’t likely, delaying it, even a few years or months, can make a big difference in the size of the check you ultimately get. You can view your expected benefit amount on your annual Social Security statement, which you can view at the Social Security Administration website.

4. Refine your budget

Many people (and financial media) focus on achieving a magical “retirement savings number,” whether it’s $1 million or $1.46 million or more. But the most important numbers that near-retirees should focus on are actually the numbers in their retirement budget, Bishop says. They can be divided into the following categories:

  1. Fixed costs. That’s your mortgage or rent, insurance, property taxes, food, healthcare, and so on.
  2. Discretionary fees. That includes the estimated costs for the fun things you’ll do in retirement, such as traveling, eating out, etc.
  3. Planned future costs. Fixed and discretionary expenses may make up the largest portion of your budget, but you can get into trouble if you don’t anticipate other expenses, such as home repair costs, new cars, long-term care, etc.

The budget “must be thoughtful and conservative,” Bishop said. An advisor can help you think through possible costs and create one that works for your family.

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That said, your budget can always change. Sandi Weaver, a CFP in Kansas, suggests trying out a monthly withdrawal amount for about six months and then adjusting as necessary. Costs will change as you retire, and it’s okay for your plan to change too.

“Don’t worry about the little things,” says Weaver. “The retirement phase is long, [potentially] More than thirty years, so if the finances are not good for one to two years, you can get it back on track.’

5. Create a ‘retirement plan’

Finally, advisors say it’s important to have your finances and tax strategies in order, but so is making the most of your retirement days: You have a financial plan, but you also want a holistic life plan. How do you keep your body and mind healthy? Are you interested in volunteering? Would part-time work be better? Would you like to help with your grandchildren? Without some forethought, it can be harder than you think to easily fill your time.

One strategy is to draw up a so-called pension plan. Outlined by Mark Walton, a Peabody award-winning journalist, in his book Unretirees: How Highly Effective People Live Happily Ever AfterThis means thinking about what fascinates you and what you can spend your time on in retirement. It can be a (full- or part-time) job, but it doesn’t have to be.

“Soon to retire, remember that those who retire from something are more successful than those who stop from something,” says Howard Pressman, a Virginia-based CFP. “Twenty-four hours is a long time when you’re just sitting on the porch yelling at the neighborhood kids to stay off your lawn.”

He suggests asking yourself questions, including: Where will you live? How do you stay involved? How do you stay active? How do you replace lost social connections at work?

“The clearer this vision is, the easier the transition will be,” says Pressman. “There is a big difference between a financially secure retirement and a happy retirement.”

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