12 rules for making retirement savings last

12 rules for making your retirement dollar last longerKiplinger, one of my favorite personal advice sites, today offered 12 rules for making money, especially retirement savings, last. Nothing wrong with their advice, but it neglects what I think is one of the most important considerations -- how to keep Uncle Sam out of your pocket.

Here's what Kiplinger advises, plus some tax and other advice worth considering:
  1. Rent instead of buy. For most people at or near retirement that advice comes too late. Many of us have owned our own home for years. But if you're still paying on a mortgage, plan to pay it off as quickly as possible.
  2. Consider a Roth. Before you leap into a conversion, consider what Bankrate.com says about conversions. The first $20,000 of income that you take from a tax-deferred account, such as a regular 401(k) plan or traditional IRA, will be free of tax. So why pay tax upfront with a Roth if you have less than $400,000 in savings?
  3. Focus on stocks with dividends. This isn't a game for amateurs. Even Kiplinger warns that picking stocks that pay high dividends is more complicated than it sounds. Get knowledgeable assistance before you dump a lot of money in a stock that ultimately is going to be a loser.
  4. Keep cash for emergencies close by. When the stock market tanked in 2008, retirees who survived best were those who didn't have to sell stocks because they had a year or two worth of living expenses in cash. That gave their investments time to recover.

  1. Think cottages, not mansions. The retirement dream home could be something simple you can afford to purchase with cash. Thanks to the real estate meltdown, there are some really lovely properties available in attractive places at amazingly low prices. Some people advise leaving savings alone and getting a mortgage. But it isn't always that simple. If you don't have a mortgage, chances are you won't have to dip into your tax-advantaged IRA or 401(k). Almost anything you take out of these will be taxable, so you have to consider the additional taxes compared to what you might have made on the money you could have left in savings when you bought the house.
  2. Work until you're 66. If you take Social Security at 62, not only will you get 25% less than you are entitled to at your full retirement age, but you also can only earn about $14,100 this year without having to pay back some of your Social Security. That's a bad deal all around. Once you get to full retirement age, which is 66 for most people reaching retirement soon, you can earn any amount without a penalty.
  3. Cut your credit card debt. Having credit card debt in retirement is foolish. Put the cards in the drawer and only use them for things like car rentals where you'll pay more if you don't have a credit card. The ScottTrade 2010 American retirement study found that 60% found credit card use an impediment to saving.
  4. Consider annuities. Immediate annuities are like do-it-yourself pension plans, lasting as long as you do. That's a secure feeling, but don't put all your money in one of these. Having available cash can be important when an emergency hits. Plus most annuities don't have inflation riders, so the payment stays flat as inflation increases.
  5. Be realistic about investment returns. It wasn't very long ago that retirement planners talked about average annual yields of 8% or more, but these days those kinds of returns have all but disappeared. If a financial planner tells you that he can get you that kind of yield consistently, it's a good idea to run in the other direction.
  6. Retire the mortgage. The mortgage deduction that once seemed so smart isn't so great any more. Interest is front-loaded on a mortgage, so the percentage that you pay toward principal increases as the debt decreases. Plus, if you're earning less money in retirement, chances are the standard deduction will save you more than itemizing, so not being able to deduct mortgage interest won't matter.
  7. Don't put all your eggs in one basket. Diversifying your investments allow you to take gains where you can get them and minimize losses if one segments goes south.
  8. Start saving early. Even if you save a minimal amount and your income is low, steady savings added to the miracle of compound interest will build you a surprisingly large nest egg.
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