Retirement is a time that many Americans look forward to. There is no longer the need to go into an office every day. There is time to take the trips that were impossible to take before because of a lack of vacation time. It can be tempting to go hog wild and start spending down a nest egg rapidly. That’s a bad idea. Here are the first steps new retirees should take to ensure their money doesn’t run out before they die.
Set A Budget
It’s important to have a budget while working. Even when someone has hit retirement, there is still a necessity to maintain a budget. Few people have an unlimited source of funding. Most retirees will need to look at the income they have coming in and then set a budget that fits within their means. There is the possibility of actually building a larger nest egg in retirement if spending stays within the budget.
Set A StrategyFor Withdrawals
Those who have pension and Social Security income don’t have to worry about a withdrawal strategy. The money rolls in every month at the same time. This will help for budgeting purposes. However, not everyone has a fixed income rolling in each month. Many Americans have retirement savings in vehicles like IRAs or 401(k) plans. These folks will need to have a strategy for withdrawals. It’s recommended that retirees take out no more than 4% of their nest eggs each year. As long as the money is split between stock and bond funds, it’s estimated that this level of withdrawal should allow the money to last at least 30 years. Most people who retire at 65 will be dead within 30 years. It’s a good idea to hold a year or two in cash to avoid taking out withdrawals when the market is down.
Even those who are doing well when they retire could benefit from reducing their expenses. Housing takes up more than 40% of the average retiree’s budget. Downsizing can be a great way to free up some money. This additional money in the budget could go toward reducing withdrawals from a 401(k) or IRA. Additionally, it’s possible to cut down on the number of vacations taken each year to avoid some expenses. The more slowly a person spends down his or her nest egg, the longer it will last. It’s a good idea to check with a financial planner to see how to maximize retirement. The earlier the plan is put into place, the more likely it will be to succeed.