How to Improve Your Finances After Retirement
You have many opportunities to fix your retirement finances before you retire. You can ramp up your savings, eliminate debt and make smart decisions about when to sign up for Social Security and other types of retirement benefits. But even after retirement, it's not too late to fix a funding shortfall. Here are some ways to improve your cash flow after leaving your job.
Remember required minimum distributions. Retirees are required to take annual withdrawals from traditional 401(k)s and IRAs each year after age 70½ and pay the resulting income tax bill. Missing a distribution triggers a 50 percent tax on the amount that should have been withdrawn.
Minimize taxes. Many retirees have some of their savings in traditional retirement accounts, Roth accounts and regular savings and investment accounts, each of which has a different tax treatment. Having money in these three types of accounts gives you opportunities to save on taxes and flexibility in when you pay them. Income tax will be due on every distribution from traditional retirement accounts, but retirees can withdraw money from a Roth account that is at least five years old without incurring any additional tax on that money. "From the time they retire until they take Social Security, there's a window of time to do a Roth conversion and to take some money out of the 401(k) account and put it into a Roth IRA," says Anne Ward, a certified financial planner for Allodium Investment Consultants in Minneapolis. "You are actually prepaying taxes, so that later in retirement, when the required minimum distributions start, you are not forced to take out quite so much."
Downsize. Moving into a new home, condo or apartment that costs significantly less than your current house can allow you to improve your nest egg in a short amount of time. However, you need to factor in the costs of selling your home and relocating, and make sure you will free up enough cash at the end of the house swap to make the move worth it. "If you are going to sell the home that you raised your children in because it's a four-bedroom house in the suburbs with a bigger yard, you have to make sure you go to a lesser priced house," says Kevin Reardon, a certified financial planner for Shakespeare Wealth Management in Pewaukee, Wisconsin. "If it's only $25,000 less, you may save some money on annual maintenance, but much of that will go toward the expenses when moving." If you move outside your current neighborhood, consider whether you will have friends and family nearby to spend time with in retirement.
Lower cost of living. Retirees often have time to invest in saving money. You might be able to negotiate lower rates on services you use, take the time to find and use a coupon or be able to visit several stores to comparison shop. Once you reach a certain age, you also qualify for senior discounts. "You could do a defensive driving course, and then get a discount on your car insurance," Ward says. "You can take advantage of travel discounts that people in the workforce can't take advantage of because they don't have the flexibility to leave on a Tuesday."
Extra income. Many retirees take on part-time jobs or find creative ways to bring in income, often for the cash as well as the social benefits the job provides. You might be able to find a part-time job in your community that suits your tastes. "Perhaps if they like golf, they can work at a golf course -- get paid a little bit, maybe some free golf to go with it. For someone who enjoys working around the house, maybe they can get a job at Home Depot for 20 hours a week," says Scott O'Brien, a certified financial planner for WorthPointe Wealth Management in Austin, Texas. "These part-time jobs serve a number of purposes: [You] can delay the start of Social Security payments, thus allowing the benefit to grow, may get health insurance coverage, which otherwise may be very expensive, and gives the retiree something to keep them active and engaged." You can also use the skills from your former career to consult, mentor or occasionally take on projects when it suits your schedule.
Emily Brandon is the senior editor for Retirement at U.S. News. You can contact her on Twitter @aiming2retire, circle her on Google Plus or email her at firstname.lastname@example.org.