After decades of hard work, retirement can either be the sweet kiss of relief, or it can be the echo of an empty piggy bank and the looming question: what now?
You never want to face the very real possibility of running out of money once you’ve retired.
At the very least, it could mean you have to give up the free time you earned and begrudgingly reenter the workforce.
At the very worst, it could mean bankruptcy.
I don’t want that to happen to you.
That’s why I’m giving you a trick to MAXIMIZE your savings that will protect you and your money from retirement doomsday.
Advice about how best to contribute to your retirement savings vehicle varies no matter who you ask.
Whether you rely on your employer’s 401(k), a pension, or your own investment account, there are certain things all aspiring retirees should know.
The first has to do with taxes. Regardless the type of account you own, or how much you contribute, your money will be subject to taxes one way or another.
Famous tax-deductible accounts rival tax-deferred accounts, and proponents for each will try to convince you to entrust your future to them.
I’ll be honest with you: the main difference is whether you want to pay taxes on your contributions now or later. They’re going to happen no matter what.
Some will opt for a tax-deductible account, assuming today’s taxes are lower than what we will face in the future.
But if you plan to retire in the very near future, the span of a couple years doesn’t make much of a difference to you.
With that, most “golden” retirement advice will aim to persuade you from one strategy or another, befitting what that person is selling or believes in.
Most of these recommendations can be tailored to your personal retirement goals. That doesn’t mean that choosing to heed one plan over another makes it better.
For example, many retirement gurus suggest trying to save enough to have 80% of your working income at your disposal throughout your retirement.
If you’re happy clipping coupons in the house you’ve already paid off, you probably could get away with saving a lot less than someone who wants to buy a beachfront condo and write checks to each grandkid.
Both routes are viable; it just depends on what YOU want for your golden years.
That being said, there is one piece of retirement saving advice that applies to everyone.
Whether you’re kicking your feet up at the beach or sharing a snug townhouse, you still have to eat. And pay utilities. And keep the lights on.
So, even if you plan to live a Spartan lifestyle and leave your expenses in the past with your working years, you still need a decent chunk of money to keep you going.
The trick to making sure your savings sum is as large as possible the day you retire is rebalancing your portfolio.
This just means reevaluating where your money is going as you reach closer and closer to retirement.
Ideally, you started saving early and already knew about rebalancing and its benefits. But if you didn’t, it’s not too late.
I recommend rebalancing your portfolio every year. As you near your target retirement date, consider making more conservative investments to protect the bulk of your funds.
The most common division is a portion invested in stocks and a portion invested in bonds.
Stocks are more volatile and likely to yield a greater return, but bonds provide the security and steady growth you want grounding your grand total as you come closer to cashing out.
I’m sure you’ve heard about the ‘magic percentages’ before, so I’ll spare you. My advice on that front is making sure you always have bonds to hedge your stocks. The percentage is up to you and your risk tolerance.
Sit down once a year and consider how you want to readjust your portfolio for risk, dividend payouts, changes in the market, etc. I recommend doing it right around when you do your taxes (two birds, one stone).
The alternatives to spending your time doing this is to choose an automatic rebalance if your investment account allows it, or a target date fund.
A target date fund will automatically adjust for the changing years and your unique retirement situation, but they often come with higher fees.
Now that you know the key to maintaining your retirement account, I hope the fear of living on pennies has eased.
Don’t let trepidation rule your life, but beware of the things designed to be obstacles.
Running out of money in retirement is a possibility, but for you, it’s not anymore.
