2704: 7 Ways You May Be Leaving Money on the Table When You Retire by Kathleen Coxwell of New Retirement

[00:00:00] This is Optimal Finance Daily, Episode 2704,

[00:00:04] 7 Ways You May Be Leaving Money on the Table When You Retire

[00:00:08] by Kathleen Coxwell of newretirement.com

[00:00:11] and I'm your host and personal finance enthusiast, Diania Merriam.

[00:00:15] We're going to jump right into today's post as we optimize your life.

[00:00:23] 7 Ways You May Be Leaving Money on the Table When You Retire

[00:00:27] by Kathleen Coxwell of newretirement.com

[00:00:31] Are you leaving money on the table when you retire?

[00:00:34] The answer is likely a resounding yes, whether you realize it or not.

[00:00:38] And that is too bad.

[00:00:40] You want and need every penny you can muster to fund a secure future.

[00:00:45] So it's important to take advantage of every opportunity to make smart use of your money.

[00:00:50] Surprisingly though, many retirees, and soon-to-be retirees,

[00:00:54] overlook not just hundreds or even thousands of dollars,

[00:00:57] but hundreds of thousands in money that could be put towards retirement expenses.

[00:01:02] Here are 7 tips to help you ensure you're not falling into some of the typical traps

[00:01:07] that often lead to retirement downfall.

[00:01:11] Number 1. Make a Good Decision About Social Security

[00:01:15] There isn't necessarily a right or wrong way to claim social security.

[00:01:20] However, it's important to understand how the program was designed to help seniors.

[00:01:25] According to the Social Security Administration,

[00:01:28] Social Security is only supposed to replace about 40% of workers' wages in retirement,

[00:01:33] but almost half of all married couples and 71% of single people

[00:01:38] are using their Social Security income as at least half of their monthly income

[00:01:43] according to the Social Security Administration.

[00:01:46] A mistake many people make is they take their full Social Security benefits

[00:01:50] right when they turn 62, when they become eligible, regardless of whether they're still working.

[00:01:56] By claiming Social Security at the earliest possible date,

[00:01:59] many people are leaving a substantial amount of money behind

[00:02:03] because the longer you wait, the greater the benefits become.

[00:02:07] To give a sense of just how much of a difference this can make,

[00:02:10] consider that each year you wait past your full retirement age to collect Social Security,

[00:02:15] your benefit grows by around 8% up to age 70.

[00:02:20] The difference between claiming at 62 and claiming at 70 can be huge.

[00:02:26] You might be leaving money on the table, up to $100,000 or more.

[00:02:30] Number 2. Loosen Up Some Of Your Investments

[00:02:34] Another way older Americans are leaving money on the table in retirement

[00:02:38] is that they're not taking on enough risk with their investments.

[00:02:41] Investing all of your money too conservatively in retirement can hurt in the long run.

[00:02:46] Becoming more conservative in retirement makes sense,

[00:02:50] but there's a level of risk that can still be maintained.

[00:02:54] You may be avoiding the stock market in fear of volatility

[00:02:58] and favor of investing in CDs or treasury bonds.

[00:03:01] But by limiting yourself in your investments

[00:03:04] and taking too conservative an approach, you could miss out on substantial gains.

[00:03:10] A good strategy is to maintain a well-diversified investment mix.

[00:03:14] Try looking into a variety of investments,

[00:03:17] some risky, some rock solid secure and others in between.

[00:03:21] The exact percentages in each type of financial product should be based on your wealth and goals

[00:03:27] and look at index funds rather than individual stocks.

[00:03:31] Another more strategic option is to apply a bucket investment strategy.

[00:03:36] For example, invest money you need in the short term conservatively

[00:03:41] and money that you won't need till later more aggressively.

[00:03:45] Or bucket what you need to spend in retirement and invest that money conservatively

[00:03:50] and have money that you would like to be able to spend invested with the potential for more return.

[00:03:55] And if you're worried about stock market volatility,

[00:03:58] consider ways to protect your money from a stock market crash.

[00:04:03] Number three, don't forget 401Ks at previous employers.

[00:04:08] An ING direct USA survey found that 50% of Americans who have participated in a 401K plan

[00:04:15] left an account at a previous employer.

[00:04:18] If that's not leaving money on the table then I don't know what is.

[00:04:22] And it's not chump change that's being left behind.

[00:04:25] Nearly a quarter of the orphaned accounts are valued between $10,000 and $50,000.

[00:04:31] When you leave an account at a previous employer,

[00:04:33] it's unlikely that you're monitoring and managing the account to maximize growth.

[00:04:38] Rolling over accounts is almost always a good idea,

[00:04:41] so long as you follow the rollover guidelines carefully.

[00:04:49] Many Americans in retirement are saying goodbye to a lot of money

[00:04:52] as they're withdrawing funds from their savings.

[00:04:55] This is because most don't have a formal plan for withdrawals.

[00:04:59] Many retirement savings accounts have tax implications,

[00:05:03] so it's important to be aware of the account type from which you're withdrawing

[00:05:07] as well as the taxes that come into play.

[00:05:10] Yes, there are some accounts for which withdrawals are not taxed,

[00:05:13] so it's important to be aware of the differences among your accounts upfront.

[00:05:18] A plan should be put into place along with your retirement budget,

[00:05:21] ideally before you retire.

[00:05:24] If you're already in retirement, make a plan as soon as possible.

[00:05:28] Tax implications are also different from state to state.

[00:05:32] For example, 13 states in the United States tax social security benefits.

[00:05:37] So be sure to find out as much as possible about your individual state's laws

[00:05:41] on taxing retirement benefits as well as the tax implications

[00:05:45] on all of your retirement savings accounts.

[00:05:48] Number 5. Think about taxes.

[00:05:51] How much you'll have to pay in taxes after retirement may be the last thing on your mind,

[00:05:56] but not taking the time to look at how retirement taxes will affect you

[00:06:00] could be a mistake and you could be missing out on a chance to get more from your money.

[00:06:05] Number 6. Retire debt before you retire.

[00:06:10] Before you retire, your goal is to amass resources to live from when you stop working.

[00:06:15] After you retire, you have a relatively fixed stockpile to make ends meet.

[00:06:20] If you're still paying off debt, the interest payments is definitely money that's being wasted.

[00:06:25] Especially if the interest rate you're paying is greater than the interest rate you could be earning

[00:06:30] if the money was in savings or investments.

[00:06:33] And number 7. Consider your home equity.

[00:06:37] When people calculate what assets they have for retirement, they usually think about savings and income.

[00:06:42] However, if you own your home, your home equity may be your most valuable asset overall.

[00:06:48] This money can be tapped for retirement through downsizing, getting a reverse mortgage

[00:06:53] or even by renting out a room.

[00:06:56] Your home is a valuable resource that really should be considered as part of your overall retirement plan.

[00:07:02] Depending on what it's worth, it could easily add hundreds of thousands to your usable assets.

[00:07:11] You just listened to the post titled,

[00:07:14] Seven Ways You May Be Leaving Money On The Table When You Retire

[00:07:17] by Kathleen Coxwell of newretirement.com

[00:07:20] and I'll be right back with my commentary.

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[00:09:14] This article for me highlighted the need for a well-thought-out drawdown strategy in retirement that is reassessed every year.

[00:09:22] The tricky part is that you don't know how long you'll live, so the number of years you're planning for can't be known.

[00:09:29] There are two schools of thought here. A conservative approach for safety and a probability-based approach to maximize wealth generation.

[00:09:38] One way to combine these two approaches is to think about how an annuity, bought at the appropriate time, plus Social Security can provide a nice safe floor of income.

[00:09:49] And then the rest of your portfolio can be used for discretionary income needs.

[00:09:54] If you've saved and invested properly for retirement and you've done all the right modeling and testing of your portfolio, there is likely little worry of running out of money.

[00:10:04] However, I don't see many people talking about managing cognitive decline as you age. Do you really want to be managing a complex withdrawal strategy in your 80s and 90s?

[00:10:15] Annuities are insurance products with contracts issued by life insurance companies, so it's more of a risk transfer strategy than it is an investment.

[00:10:24] But if you're curious about annuities, it could be worth your time to consult with a flat fee fiduciary advisor.

[00:10:31] And that'll do it for another edition of Optimal Finance Daily. Thank you so much for subscribing or following the show and sharing it with others.

[00:10:39] Have a great rest of your day, and I'll see you tomorrow where your optimal life awaits.