Retirement Planning

How to Keep Yourself Fit for a Healthy Retirement

man and woman in kitchen cooking-keep yourself fit for a healthy retirement

All the advances in medicine and technology have created a dramatic increase in life expectancy. People are living longer than ever, including much more years in retirement. We all hope for a happy and healthy retirement, but unfortunately, getting older comes with concerns over health.

Making an active effort to stay healthy will not only allow you to live longer but will increase your chances of having a more fulfilling and energetic retirement doing the things you love.

So how do you keep yourself fit for a healthy retirement? The best advice is to start planning for it today.

In this article, I will look at the problems related to physical, mental, and emotional health and find ways to improve each.

Find time for physical activity

Whether you are planning to retire in a few years or already retired, get moving.

We all know that exercising is important. Studies have consistently confirmed that regular exercise reduces your risk of heart disease, diabetes, stroke, and even slows down the development of dementia. So, if you want to have a healthy and active retirement, then find time for regular exercise.

Many experts argue over how much exercising is healthy. But everyone agrees that some moderate exercise is better than none. Whether it is aerobics, lifting weights and doing sit-ups, or practicing yoga and gardening, we should all get engaged in some moderate physical activity.

The important part is to find the activity you like so you will keep doing it regularly.

Do not wait until you retire or do not wait until your health starts to decline. Choose something you would enjoy and make it part of your daily routine.

Many books and YouTube videos can help you to do a workout from the comforts of your home.

15 Best Quick and Easy At-Home Workout Moves

Here is my favorite home workout on YouTube. It only takes me 30 minutes to follow the workout playlist any time I want.

Family Fitness – 30 Minutes Body Workout

If you prefer to exercise with other people, you can join a gym or take group fitness classes. But if you do not want to spend extra money on expensive personal trainers or gym membership, walking, running, or cycling outdoor will be more than enough to stay in good physical shape for years.

Explore your local walking and jogging trails. Those 30 minutes a day you need to spend walking can be done in a local park or greenway path. Leave your car at home and walk or bike to the local store, bank, or post office. Gardening or decluttering are also easy ways to keep you active and fit.

Have a healthy diet

As you age you are more likely to have problems with health linked to nutrition. That is why a healthy diet is more important than ever.

Eating healthy is similar to exercising every day. And it works better if you plan for it. Plan your meals so you will not end up snacking up on ice cream before dinner because you are hungry.

If you want to eat a healthy diet avoid too many saturated fats in meat and dairy. Healthy people usually restrict the amount of sugar and salt in their diets, and they drink lots of water and tea.

According to various studies, a diet rich in fruits and vegetables is linked to a reduced risk of obesity, diabetes, and cancer. So instead of eating fast food, you should choose to eat fresh food. For people over age 65, it is recommended to have five or more servings of fruits and vegetables every day.

For me, the Mediterranean diet works as a great inspiration. People in the Mediterranean region live longer because they follow a healthy diet rich in whole grains, vegetables, fruits, and low-fat dairy products. Their diet is low on animal products, and they prefer to cook fresh fish.

You need to make sure that you are always working on how to improve your diet by choosing foods that are good for you and cutting down on packaged food. Do not forget to shop smart and always read food labels to avoid foods high in cholesterol and saturated fat.

veggies and fish - healthy diet for retirement

I try to eat healthy every day and plan all our meals. I like to have a healthy breakfast – orange juice, oatmeal, fruit, and green tea. I try to eat less at dinner because I watch my calories and do not want to gain extra weight. I prefer to eat meat or fish during lunch. And I serve all our meals with at least one green vegetable or salad.

And the main thing, I try to go easy on sugar (chocolate and ice cream are my weakness!) and drink plenty of water with lemon.

Learn new things

Keeping yourself fit in retirement is not only related to physical activity. In general, being fit means a combination of different factors including physical fitness and mental health. Staying sharp mentally is as crucial as staying physically fit.

When you are engaged in physical activities you focus on your muscle strength training. The same kind of training should go for brain activity. To stay mentally fit you need to challenge your brain with various exercises.

One of the best ways to keep your mind young and active is by learning new things.

Here is a list of ideas:

Learn how to play a musical instrument
Start (or join) a book club
Learn how to paint
Take a pottery class
Learn how to be a photographer
Take a cooking or baking class
Write a poem
Write and publish an e-book
Learn new digital skills – open an Instagram or Twitter account.

I believe that keeping our minds sharp is an important part of prolonging the time we can enjoy in retirement.

Monitor your health

Many health issues are age-related.

Our body gets weaker as we age. Many people will experience aging issues such as heart disease, arthritis, diabetes, dementia, osteoporosis, and more. That is why regular medical check-ups are a must.

You should visit your doctor regularly and do not skip any recommended health screenings and tests. If you are a woman, you need regular tests for breast and cervical cancers. If you are a man, your doctor should help you decide about a prostate cancer test.

Keep an eye on your blood pressure and cholesterol level to avoid a heart attack or stroke.

Maintain an active social life

People who have plenty of friends and enjoy a close relationship with their families, typically live longer than people who are lonely.

When you retire, you do not just leave your job, you enter a new stage in life.

Leaving the workforce will reduce your social interaction with colleagues. Friends and neighbors might retire and move away. Death can take a spouse or close friend. Those are all sad life events because loneliness is linked to poor health and early death.

We all know that having a strong social support system helps us deal with stress.

It is important to stay involved and engaged in life, so you do not feel lonely. Being engaged in a community gives people a sense of purpose, security, and connection. It is important to have a reason to get up every morning, go out, and do things.

Find new purpose in life

If you are ready to leave the working world, think about how you will spend the 40 + hours a week you spent previously at your job.

The reality is that you may feel ready to retire, but on the other hand, you may feel nervous and doubtful.

What are you going to do with all that free time? One of the best things you can do is create a plan for your retirement.

You need to decide what will be important in your new life and how are you going to spend your days and weeks. The minute you say goodbye to coworkers you need to know what is next for you.

It is not a secret that when you feel like your life has a purpose and meaning, you will experience less stress. And with less stress comes fewer negative health effects.

Having a purpose in life makes people stay more physically active and more willing to take care of themselves.

Finding Your Purpose in Life in Retirement

Find hobbies to fill your days

I think everyone had some interests in life before they were forced to put them on a shelf during their working years. We spend our lives doing things that we have to do – career, kids, family. But retirement gives us a new opportunity to start over again.

Many retirees struggle to feel useful after they stop working which can negatively affect their health. Instead of being depressed and unhappy, refocus your energy on learning something new and more interesting than your previous job.

I believe that desire to travel the world is a big factor for people wanted to retire. Travel is important at any time in life. But travel in retirement gives you a new opportunity to explore the world, learn a new language, and use your social and communication skills.

Another big factor is a desire to complete a bucket list. Creating a bucket list is a helpful tool to set up your retirement goals or have a list of things you want to complete at least once in your life.

15 Ideas on What to Do in Retirement

Work on your relationships

Retirement can be a challenging time for relationships. When you stop working you will leave most of your friends at work behind. Sadly, many will disappear from your everyday life the day you leave.

two women on a bench - friendship in retirement

Growing older could be lonely unless you have support, love, and even friendship from your family.

Do you have a good relationship with your spouse if you are married? Do you stay connected to your children and their families? Do you spend enough time with your grandchildren?

There are many things to do together as a family. Go to the game or concert with your kids and grandkids. Consider a family vacation together. Spend all holidays and other celebration times together.

Do you stay connected with other parts of your family like your brothers or sisters? What effort do you make to stay in touch with them?

Unfortunately, many of us spend more time on Facebook, Instagram, or Twitter to stay informed and connected with former classmates or colleagues because they post often rather than spend time with people who are important to us.

I recently read that one of the greatest regrets of people who are getting closer to the end of their lives is that they didn’t spend enough time with their loved ones.

Life is short! Make sure that you spend enough time with the most important people in your life.

Takeaway

Taking care of yourself and making your physical, mental, and emotional health a top priority in retirement is the best gift you can give to yourself and those you love.

How do you keep yourself fit and healthy? Share your ideas in the comments below.

If you enjoyed reading, share this post so that others can find it, too!

Should I Pay Off a Mortgage Before Retirement?

by Maggie 2 Comments

woman holding for sale sign - pay off a mortgage before retirement

For many of us, the mortgage debt is the largest in our budgets. That is why entering retirement debt-free seems ideal for many people.

Getting rid of a big debt could save you thousands of dollars in interest and free up money you can add to your retirement savings or just reduce your expenses in retirement.

It is my dream to pay off our mortgage before we retire. But I do not think it is possible. And I am not alone. According to stats, more and more people retire owing money on their homes. The Federal Reserve’s Survey of Consumer Finances showed that 37.6% of households of people aged 65 to 74 had a mortgage in 2019.

We all know that it can take decades to pay off your mortgage. But does it always make sense to pay off a mortgage before you retire?

Reasons to consider paying off your mortgage before retirement.

There are many reasons to consider when deciding should I pay off my mortgage before retirement or not:

You may be able to retire sooner.
You will have one less bill to pay each month in retirement.
It will provide you with more income in retirement.
Paying off a mortgage before retirement can reduce stress.

Also, it makes sense to pay off a mortgage before retirement:

If the house is worth more than the mortgage balance.
If the interest rate on your mortgage is higher than the rate of return on your investments.

Here is a related post you might want to read:

How to Use a Home Equity in Retirement

Benefits of paying off your mortgage before retirement.

Most people would be better off not having a mortgage in retirement. Getting into retirement with an unpaid mortgage will put a burden on your lifestyle.

When you are working, you have years of earned income to pay off a mortgage. But once you retire, you will be living on a fixed income. And when you start living on a fixed income, it is hard to pay off debt if you need to pull big chunks of money from your savings. Although, large withdrawals from retirement funds could push you into a higher tax bracket.

Frankly, it will make your retirement life a lot harder if you must continue to pay a mortgage when you are not working. In addition to that, you still have to spend money on property taxes, homeowner’s insurance, maintenance, and repairs.

The simple fact that you have lower housing costs means you will need less income to cover this essential expense. Also, you will have more retirement income left for other retirement expenses.

Being debt-free gives you more freedom and money left in your pocket to enjoy your golden years than struggling to pay off the mortgage.

Roman and I refinanced our house many times. But even with a low-interest rate of 2.5 percent, the mortgage payments take the biggest chunk of our budget.

Here is a list of benefits of paying off your mortgage before you retire:

Give you peace of mind
Provide you a place to live without worrying about monthly payments
Reduce your retirement expenses
Saving you money on interest

How to pay off your mortgage before retirement:

Refinance to a shorter-term loan. One way to pay off your mortgage faster is to refinance to a shorter loan term. For example, you can apply for refinancing your mortgage from a 30-year to a 15-year loan. That can put you on the fast track to paying off your mortgage.

However, it is important to remember that a shorter-term loan means higher monthly payments. Make sure your budget can handle the higher payments each month.

Refinance to a lower interest rate. Another smart option to reduce your mortgage debt is refinance it at a lower rate. In 2020 Roman and I refinanced our mortgage with Ameri Save Mortgage Corporation at 2.5 percent. It helps us bring down our monthly payments and save up to $500 a month.

Make an extra payment each month or each quarter. Look at your mortgage balance and figure out how much extra you can put toward your mortgage each month. Those extra payments can reduce your principal balance significantly.

Making an extra payment 4 times in one year could remove 10 years from your payoff date.

Every dollar you pay above your regular monthly payment helps speed up your payoff date. It does not mean that you have to start doubling up your monthly payments. Simply adding an extra $100 a month to the principal can speed up your payoff date for 5 years.

Switch to bi-weekly payments. Also, instead of sticking with the traditional monthly payments, you can start making bi-weekly mortgage payments.

When you switch to a bi-weekly mortgage payments program, you split your payment in half and pay twice each month. There are 52 weeks in a year. If you switch to bi-weekly payments, you end up making 26 payments which are equal to 13 monthly mortgage payments – one extra payment yearly.

With this strategy, you will be able to knock off a few years of your mortgage balance and reduce the amount of interest you pay on the loan.

Put extra cash towards your mortgage. Whether it’s a bonus, tax refund, salary raise, or inheritance, put every dollar towards paying down your mortgage debt.

Reasons not to pay off your mortgage before you retire.

Rushing to pay off your mortgage before retirement may not be a good idea for many reasons:

Paying off your mortgage early could trigger a penalty
You may be better off investing the money
You may need to borrow against your home equity later
You will be paying off your mortgage with savings

Tax benefits. Your mortgage interest is tax-deductible.

If you are still working and in the 35% tax bracket, every dollar you pay in mortgage interest saves you 35 cents in federal income taxes. Also, you save money on state income taxes.

A mortgage is a low-cost debt. A mortgage is one of the least expensive loans available.

If you have a credit card debt, it often comes with a higher interest rate than a mortgage. Do not rush to pay off a 2.5 or even 3.5% mortgage if you have credit card loans or other debt you are still paying off at 18 or 20% rates.

It is better to save for retirement than pay off a mortgage. As I mentioned above, mortgages are often the cheapest money you will ever be able to borrow.

Typically, mortgages have a lower rate and even fixed-rate, helping to ensure that borrowed money remains cheap for the next 15 or 30 years. That means people have the opportunity to put funds elsewhere, such as in savings and retirement accounts.

Thanks to compound interest, a dollar you save and invest today has more value than a dollar you invest 5 or 10 years from now. That is because your invested money will be earning interest on top of interest for a long time. For that reason, it makes more sense to start saving for retirement when you are younger rather than focus on paying off your mortgage.

What to do if you cannot pay off your mortgage before retirement?

Unfortunately, not everyone can pay off a mortgage. Retiring with mortgage debt is becoming a more common scenario.

person holding a house keys - benefits of paying off mortgage before retirement

To pay off a mortgage before retirement might not be realistic for everyone. If you are like me and worry about how to afford mortgage payments in retirement, there are several options to consider:

Downsizing. Your home is one of the biggest investments.

If you have been living there for a long time, your home went up in price and accumulated a lot of equity. One of the ways to get rid of mortgage payments and home maintenance bills is to sell the house.

If you cannot afford to pay off your mortgage, you might consider selling your home. You can sell the big house and trade it down for a smaller house or a condo. Or you can move to a cheaper area and pay cash for your new house.

Invest equity. Do you want to deal with the hassle of homeownership in retirement?

Maybe you rather spend time traveling and visiting family and friends. In this case, your option will be to sell your home, invest cash, and enjoy living on rent and mortgage-free.

Investing the cash from home sales will bring you additional income in retirement. If you let it grow for 10 years in your investment portfolio, and it might be enough to pay cash for your next house or a condo if you are tired of renting.

But many people would prefer to stay in their homes and retire in place. They want to remain in their neighborhood for life.

In this case, homeownership might provide several options to fund your retirement without the risk of stock market investments.

In this case, consider a reverse mortgage. Those people who have big equity built up in their homes could apply for a reverse mortgage. This type of loan can be also used to pay off the existing mortgage.

A reverse mortgage is also known as a home equity conversation mortgage (HECM). It provides income to retirees and does not require monthly payments. You still have to pay taxes and home insurance, and you will be responsible for maintenance.

The best part is that you will receive a portion of your home equity in cash without requiring you to move out. But the loan has to be repaid when the owner sells the house, moves out, or dies.

A reverse mortgage can be flexible, and you can take HECM as a line of credit (HELOC), lump sum, or annuity.

One option is to use HECM for your medical or long-term care expenses late in life when you run out of money.

Another option is to set up an annuity to increase Social Security and any other retirement income you will receive.

However, reverse mortgages can be complicated. There are many terms and conditions, and it is a relatively expensive way to borrow money. So, make sure to do your research to understand all the pros and cons, and talk to a loan specialist.

Your Guide to Reverse Mortgages

Should you pay off your mortgage before retirement if you could? Share your thoughts in the comments below.

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How to Cut Expenses Before You Retire

by Maggie Leave a Comment

woman with laptop - cut expenses before retirement

If you are near retirement age, these tips on how to cut expenses will help you save more and give you the freedom to retire sooner.

And if you are still working, you are in a great position today to improve your life in retirement because you still earn an income. Your remaining working years could be a great time to explore some smart options of cutting expenses before you stop working.

According to the Bureau of Labor Statistics, Americans aged 65 and older spend about $48,000 per year ($4,000 per month) on average.

In retirement, most of your money will be spent on 3 big categories – housing, transportation, and medical.

According to the Bureau of Labor Statistics Consumer Expenditure Survey, for adults aged 65 and older:

Housing represents 34% of spending
Transportation represents 16% of spending
Health care represents 13% of spending

1. Reduce housing cost.

I do not have to tell you that your housing costs eat up a big chunk of your money every month. Even in retirement, the cost of housing will be your biggest financial burden.

Bringing an unpaid mortgage with you into retirement will cause a lot of financial stress each month.

The cost of homeownership for the average American household is $13,153 annually without the cost of a mortgage.

Based on my own calculations, Roman and I spend $28,400 a year on mortgage, insurance, taxes, utilities, and maintenance. It takes 25 percent out of our annual budget without the cost of home improvements and major repairs.

According to statistics, the average retiree household spends around $17,472 per year ($1,456 per month) on housing expenses including mortgage, rent, property taxes, insurance, maintenance, and repairs.

Pay off your mortgage.

You will make your retirement life a lot harder if you must continue to pay a mortgage when you are not working. Plus, you still have to spend money on property taxes, homeowner’s insurance, maintenance, and repairs.

The simple fact that you have lower housing costs means you will need less income to cover this essential expense. In addition, you will have more retirement income left for other retirement expenses.

Retirees often have to withdraw money from retirement funds to cover their mortgage payments. Unfortunately, those withdrawals typically trigger more taxes.

Look at your mortgage balance and figure out how much extra you can put toward your mortgage each month. Those extra payments can reduce your principal balance significantly.

Also, instead of sticking with the traditional monthly payments, you can start making bi-weekly mortgage payments.

Refinance your mortgage.

Another smart option to reduce your mortgage debt is to refinance it at a lower rate.

In 2020 Roman and I refinanced our mortgage with AmeriSave Mortgage Corporation at 2.5 percent. It helps us bring down our monthly payments and save up to $500 a month.

Unfortunately, not everyone can pay off a mortgage. Retiring with mortgage debt is becoming a more common scenario.

If you cannot afford to pay off your mortgage, you might consider selling your home.

Downsize your home.

Are you an empty nester? Then it might be the perfect time to reconsider your living condition.

The smart choice would be to sell your home and move to a smaller home or condo. By reducing your housing costs today, you can get extra cash into your pocket before you retire.

Look at the advantages of a smaller home or condo:

A smaller mortgage
Lower property taxes
Reduced homeowner’s insurance premiums
Fewer maintenance costs
Less yard work, especially if you get a condo

To help you get started, here are a few useful articles you may want to read:

2. Reduce transportation cost.

According to statistics, the average retiree household spends around $7,492 a year ($624 a month) on transportation.

The cost of transportation is likely to drop when you stop working. While you will not spend money on commuting anymore, not all your transportation expenses will disappear.

We all know that cars are expensive. Not only you have to pay for gas, maintenance, and repairs, but you also need to insure them. With inflation and gas prices going up every year it will make your life on a fixed income more difficult.

If you need a car, your goal should be to spend the least amount of money on a reliable car.

Here are a few options of how to reduce the costs of your vehicles before you retire:

Downsize your vehicles.

One of the best ways to reduce the cost of transportation is to downsize your vehicles.

If a large chunk of your income goes into maintaining several cars or driving luxury cars, I would suggest downsizing or choosing a different car. Going from two cars to one or downgrading to a less expensive car can help you significantly reduce the costs of gas, auto insurance, and maintenance.

According to LendingTree, the cost of a new car, including additional costs like fuel, insurance, and tires is between $23,903 (a small car) to $57,267 (a full-size car) per year.

However, if you have already paid off your car, it makes more sense to keep it as long as you can. That way, you do not need to worry about monthly car payments. Instead, you can take that money and use it to pay down any other debts or save more for retirement.

Buy a used car.

Many people choose to lease their cars because they want to have a new car every few years. Leasing works better if you are on the road for business and can deduct the lease payments.

But if you are near retirement, buying a good used car rather than a new one for the image will help you afford retirement sooner.

Most of the vehicles lose about half of their value by the time they are five years old. So, if you decide to buy a used car, a three-year-old car will cost you less in upfront expenses and maintenance.

Between paying on average $40,000 for a new car, you can save a lot of money by spending on a used car only $22,351(at the end of January 2021).

A useful post from LendingTree: Should I Buy a Used or New Car?

Use public transportation.

In case you are planning to move from the suburbs to an urban area, you should sell your cars and take advantage of public transportation.

In this scenario, you do not need to worry about the costs of your vehicles at all. Just buy a monthly public transportation pass. And when you want to go on a road trip, simply rent a car.

Use car-sharing services.

Most urban cities also have car-sharing services that give you easy and affordable access to a car for temporary needs.

Also, using services like Uber or Lyft can help you save money without the regular monthly costs associated with owning or leasing a car. With the gas prices are going up every year, you do not need to worry about that additional expense.

3. Get rid of a high-interest debt.

High-interest credit card debt can be one of the biggest burdens on your financial life in retirement.

Most of the credit cards come with high-interest rates – 18 to 20 percent.

credit card - cut credit card debt before retirement

If you carry a big balance on your credit cards, you will be stuck paying that required minimum every time your credit card bills come due.

Keep in mind, that if you bring a mortgage, high-rate credit card debt, and maybe a car loan into retirement, you will put a lot of pressure on your limited finances.

There are two most popular debt payment strategies:

The snowball strategy
The avalanche strategy

The snowball strategy – you are paying off debt from smallest balance to largest.

First, you focus on paying off the credit card with the smallest balance. Then you move on your next smallest credit card bill until all credit card debt is paid off in full.

The avalanche strategy – you organize your payments by interest rate – from high to low.

First, you pay off debt with the highest interest rate as quickly as possible (even with extra money). Then you move on to the card with the next highest interest rate.

I recommend focusing on your highest-interest debt first because the longer it takes you to pay it off, the more money you will pay towards interest.

And if you can help it, do not add any more debt to the pile while paying off old debts.

A helpful post:

How to Pay Off Debts Before Retirement

4. Review your insurance coverage.

Getting closer to retirement might be a good time to review how much you spend on insurance and how to cut that expense.

Life Insurance

First, you might look at your life insurance and decide if you still need it.

The main purpose of life insurance is to replace lost income. If your kids are grown and you no longer have any dependents who will need financial help after you die, it might be wise to drop policies. Paid-up policies can be sold.

If you have a term life policy, make sure you understand whether the payout at your death is worth the cost of the premium you are paying today.

Auto and homeowners’ Insurance

You might also look at your deductibles for your vehicles and homeowners’ insurance policies.

When you are still working, it makes sense to set your deductibles low. But low deductibles increase the amount you pay in insurance premiums. So, when you raise your deductibles, you will pay less for your vehicles and homeowners insurance premiums.

Once you retire, you might want to pay less for your insurance policies so you will have more money to cover your daily expenses.

Healthcare

In retirement many people will spend most of their money on health insurance, medical services, and drugs, as they age.

I my articles I often write about the cost of medical expenses in retirement. Because I want to remind my readers that healthcare is going to be their second biggest expense after housing, and they need to plan for it.

According to the Fidelity Retiree Health Care Cost Estimate, an average retired couple may need around $300,000 saved (after tax) to cover healthcare costs in retirement.

Here is a helpful article you might want to read:

How to Plan for Rising Healthcare Costs

Most people will be eligible for Medicare at age 65. But if you plan to retire before age 65, you will need to find a separate plan to cover your medical expenses.

Individual health insurance is expensive and could cost more than $1,000 a month. Make sure to shop around for the best prices.

Even being eligible for Medicare brings its own set of challenges because it does not cover all medical expenses.

Medicare is not free. It does not cover premiums, deductibles, co-pays for doctor visits, dental and vision care, long-term care, personal care, and other expenses.

Long-term care insurance is the most recommended way of planning for future expenses.

Long-term care insurance will help you not be a financial burden on your family if that time comes. It will cover nursing homes, assisted living facilities, and in-home care.

After all, you do not want to leave your husband or wife with nothing because the entire nest egg was spent on taking care of you.

Final Thoughts

If you do not know what your expenses look like in retirement, it will be difficult to predict how much money you need to save for the future.

But if you can get a sense of what to expect, it will be relatively easy to cut your expenses in these categories before you retire.

Have you had more ideas on how to cut expenses before retirement?

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5 Best Ways to Withdraw Money from Retirement Savings

by Maggie Leave a Comment

woman with laptop - best ways to withdraw from retirement savings

There is a lot of information on how to save for retirement but not much on how to withdraw money from your savings when you retire.

Your retirement savings and Social Security (and pension if you are lucky) are all the money you have in retirement. And these savings need to last and support your lifestyle during the next 20 or 30 years.

As a pre-retiree, I already know that I cannot withdraw whatever I want from my retirement funds and expect my savings to last for a long time. Life does not work that way. Without a withdrawal plan, Roman and I will run out of money fast, and then it will be too late to go back to work.

Retirement Savings Withdrawal Rules:

In general, retirement planning consists of two phases – the accumulation phase and the withdrawal phase. After decades of working hard and saving for retirement, you need to shift gears and learn how to spend what you have saved.

Traditionally people work and save 15 percent into their retirement funds and then retire on average at age 65 or older. When you retire, your earned income will disappear, and you will need to pay for the cost of living out of your savings and Social Security.

In addition to that, you need to figure out how to convert your retirement savings into a reliable stream of income that can support you through your 90s.

Unfortunately, you cannot keep your money in retirement accounts forever.

The federal government is going to force you to start taking money out at age 72 if you are not working anymore. If you are still working at age 72, you have to start taking money from your IRA and old 401(k) from your previous job. But you can delay taking withdrawals (RMDs) from your current 401(k) until you stop working.

A general rule to remember – keep the money in your 401(k) or IRA until you reach age 59 ½. If you withdraw any money before that age, you will be hit with a 10 percent penalty fee on top of the regular income tax.

In this post, I want to show you the 5 best ways to withdraw from your retirement savings so your money will last for a long time.

1. Follow the required minimum distribution (RMD) rules.

The IRS requires us to start taking a minimum distribution (RMD) from tax-deferred accounts when we turn 72 years old unless we are still working.

If you do not make it on time and fail to withdraw the required amount each year, you will owe IRS a large penalty fee. In addition to the penalty fee, you will still need to withdraw the required amount of money, and pay income tax on it.

The withdrawal amount depends on your age, life expectancy (the longer your life expectancy is, the less money you must take out), and your account balance.

There are two types of retirement accounts:

Tax-deferred – 401(k), IRA, Roth 401(k)
Tax-free – Roth IRA

The minute you start taking money out of 401(k) or IRA, you will have to pay taxes on your withdrawals. If you are in a high tax bracket, you will owe a good chunk of money to IRS. Although, if you are wealthy enough and do not need money from your retirement accounts, you still must withdraw them to follow the rules of RMD.

Keep in mind that many financial firms can help you calculate an RMD.

2. Minimize mandatory distributions.

One of the best ways to withdraw money from retirement accounts and lower your taxes is to minimize mandatory RMDs. Because when you start taking money out of tax-deferred accounts, you will face an increase in your taxes.

Remember – that was the deal you had signed up when you got a tax break on the money saved in a traditional 401(k) or IRA. It was deducted from your taxable income, and retirement is the time to pay it back.

In retirement, you would owe income tax on withdrawals.

need help poster on taxes-taxes on withdrawals in retirement

That means, preserving your tax-deferred accounts until an RMD kicks in is not a great idea.

Someone who is 70 years old will have an RMD of approximately 3.5 percent of the account value, but by the age of 75, an RMD will be 4.5 percent. And at the age of 80, you will require to withdraw at least 6 percent. These numbers are just an example to show the more money you have the more you have to withdraw.

Keep in mind that an RMD will be much higher to withdraw as you grow older unless you start withdrawing money when you retire. And as I mentioned above you might be pushed into a higher tax bracket.

The main thing to remember is that every year you will need to take an RMD from your tax-deferred accounts if you do not want to owe IRS a large penalty fee.

3. Consider a Roth IRA conversion.

One of the best ways to reduce your taxes in retirement is to convert some of your traditional 401(k) or IRA into Roth IRA money.

A Roth IRA conversation is a process of switching between retirement accounts.

You take money from a 401(k) tax-deferred account and roll it into Roth IRA. The Roth account is funded with after-tax money, so when you go with the conversion it will trigger the tax bill.

But you will pay taxes only on the converted money. Once you make the move, all the funds in the Roth account will grow tax-free.

The best part is that you are not required to take a minimum distribution on the Roth IRA money, so it will grow and accumulate longer.

So, the important thing to remember is that money in a Roth IRA account grows tax-free and can be withdrawn tax-free.

However, you will need to pay taxes on any amount converted from 401(k) or IRA to a Roth account.

Even though you must take money out and pay taxes on tax-deferred accounts, your Roth IRA money will stay intact, grow, and accumulate with years. It could be used as an emergency fund or passed on to your heirs.

As a financial goal, I plan to move 50 percent of all our tax-deferred accounts to a Roth IRA account before we turn 72. I am planning to do it gradually so it will help control RMD withdrawals and reduce our taxes in retirement. Besides, if we want to delay the start of our Social Security, we will have several years of low income, which can be a good time to complete the Roth IRA conversion.

4. Withdraw from accounts in the right order – taxable vs. tax-deferred.

The saying “it is not what you earn, but what you keep” is true when it comes to withdrawing money from your various accounts.

In retirement, we need to be smart about taking money out of our retirement funds, otherwise, the big chunk of it might be eaten by taxes.

Here is a helpful article from Fidelity Investments you might want to read:

Tax-Savvy Withdrawals in Retirement

As a general rule, it is better to sell investments held in taxable (investment) accounts first instead of taking money out of tax-deferred accounts.

The main reason is that the withdrawals from the traditional 401(k) and IRA accounts are taxed as ordinary income. And typically, ordinary income is taxed at a higher rate than the long-term capital gains from the taxable (investment) accounts.

On another hand, if you withdraw money from your taxable accounts before tax-deferred, it might increase an RMD rate and that reduces your tax efficiency.

This is one of the best ways to withdraw money for tax efficiency:

First – pull money from your taxable (investment) accounts
Second – withdraw money from your tax-deferred accounts – IRA and 401(k)
Lastly – take money out of tax-free accounts – Roth IRA

5. Figure out how to take distributions from multiple accounts.

Over their lifetime, many people accumulated multiple retirement accounts – traditional 401(k)s, IRAs, and Roth IRAs. Before an RMD rule kicks in, you need to figure out how much and in what order to withdraw money from all these retirement accounts.

The problem is you cannot tap into all your retirement accounts at once.

For example, if you own a few traditional 401(k) accounts you have to withdraw from each of them individually. The same rules apply to IRA and Roth IRA accounts. That means that you cannot make withdrawals from an IRA account to meet your RMD requirements for a 401(k) account.

On another hand, you cannot combine all these accounts into a single account so it will be easier to control your money and withdrawals.

The best way is to consolidate your multiple IRAs into a single account.

However, you cannot combine 401(k) and IRA accounts into a single account, but you can roll over 401(k) into IRA.

If you are still working and have several 401(k) accounts from your previous jobs, you should be able to merge the old 401(k) into your current employer’s 401(k) plan. However, if you cannot combine old and new 401(k) plans, you can rollover old 401(k) accounts into an IRA account.

I am still a few years away from the RMD rules, but I have already begun thinking about merging all our retirement accounts into a single account.

Roman and I have multiple retirement accounts with different financial institutions:

(2) 401(k) accounts, (1) Roth 401(k), (3) Traditional IRAs, and (2) Roth IRAs.

Personally, I feel that calculating and taking money out for multiple RMDs sounds very complicated. That is why I am planning to consolidate all accounts under one roof with 401(k) and IRA rollovers which can make my life much easier to manage RMDs and to keep track of our investments and taxes.

Final Thoughts

There is so much information on how to save and invest for retirement. But when it comes to the withdrawal strategy things start looking complicated. There are many strategies, ideas, and rules to remember when you start planning for retirement.

With the knowledge of how to withdraw from retirement savings, you can minimize your taxes and keep your retirement funds working for you longer.

However, it is a complicated matter, and finding an account or a financial advisor who will help you navigate everything will be the best decision.

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Top 4 Key Ingredients for a Successful Retirement

by Maggie Leave a Comment

happy couple on a beach-key ingridients to a happy retirement

Many people struggle to find happiness in retirement. Gone are the days when people would retire based on their age and then spend a brief period of life paying bills and watching TV before they die. And unfortunately, their short life in retirement did not look a whole lot different from their working years.

Luckily, that retirement lifestyle is not appealing to new retirees anymore. But if you want the final years of life to be a happy and fulfilling time, then you need to plan for it accordingly.

Most of us would like to retire at a certain age and stop working. Others would prefer to keep working as long as they can. There are still many people who plan to get a part-time job so they can transition to retirement.

The way your retirement looks will depend on your personal priorities and choices.

Here is the list of the top 4 key ingredients to make your retirement a success story:

1. Being healthy

Health becomes the most important part of our happiness in retirement as we grow older. If you want to stay active, you need to be healthy and fit.

The healthier you are the more you will be able to do with your free time.

During the years of working and raising a family, it is so easy to let your fitness slide. There is not enough time for everything so many of us allow our weight and diet to decline.

But once you have retired you will have plenty of time to improve your physical health and fitness.

Stay in shape.

There are still many retirees who spend days lying on a couch watching TV and snacking. Some people gain weight during retirement because they are not active. As a result, they begin to eat more because they are bored.

Being overweight and lack of exercise put retirees at great risk of many chronic diseases such as diabetes, stroke, cancer, and heart disease.

Importance of regular exercise.

We all know that eating healthy and exercising regularly is important. But research shows how it is especially important to retirees.

I just read that the recent study proved that regular exercise had the biggest impact on whether or not the participants developed dementia.

Exercise can take many forms – jogging in the mornings, hiking in the woods, biking to the grocery store, taking yoga classes, swimming in the lake. If you find a workout or physical activity that you enjoy, you should stick to it for a long time.

Many books and videos can help you to do a workout from the comforts of your home. But you can still join a gym or take group fitness classes if you want to exercise with others. Do not be afraid to try something new such as Pilates, Kickboxing, or Zumba.

This winter Roman and I started exercising more at home. Our daughter sent us a link to a wonderful home workout on YouTube. It only takes us 30 minutes to follow the workout playlist any time we want.

But I have already noticed that I started to feel more fit and energetic. After working from home for so long and gaining extra 10 pounds I hope I will lose more weight and stay in shape with regular workouts.

Eat healthy.

Besides exercising and staying fit, my other goal is to eat healthy. I am not living on a diet as I used to do when I was in my 30s and 40s. I just created a very simple plan and start taking consistent mini- steps every single day.

This winter’s goal is to cut on sugar. I stop buying any sweets regularly (even I have a sweet tooth) – no candies, chocolate, cookies, or pastries. Not having any sweets in our pantry helped me cut on sugar and develop a healthy habit.

Focusing on one healthy habit at a time keeps your health goals much more achievable.

2. Having a financial security

We all want to have the financial freedom to do things we love in life. Thus, financial security is one of the key ingredients having a happy and successful retirement.

The fear of not having enough to cover living expenses and outliving your money is one of the biggest worries of retirees and pre-retirees.

Good life costs money. You do not need to be rich to have a happy life, but you still need enough money to finance your retirement lifestyle.

As I have already explained in many of my articles, you need to figure out how much you actually need to retire and live a comfortable life. Obviously, that is a different amount of funds for everyone!

If you are close to retirement, have a clear snapshot of your retirement funds and where your money is going today. It can help you take control of your spending and saving habits.

If your numbers show that you will be able to cover living expenses and have enough left over to live a comfortable life, then you are on the right path. But if you have a significant shortage of funds you will need to cut your spending, save more, or even work for a few extra years.

Here are a few related posts you might want to read:

3. Having a purpose in retirement life

I like to think that we all should retire to something and not from something.

Retiring to escape your job will not bring your happiness. You need to have something on your calendar that you are passionate about and makes you get up every morning.

Find hobbies and interests to fill your days.

I believe that everyone had some interests in life before they were forced to put it on a shelf during their working years. However, retirement gives you a new opportunity to start over again by pursuing your passion.

woman photographer at the lake-learn something new in retirement

Do not consider yourself as ‘retired from life’. Refocus your energy on learning something new and more interesting than your previous job.

If you do not know what to do with your time in retirement, here are a few helpful articles you might want to read:

Expand your horizons.

These days traveling is a number one goal for most retirees.

Many people look forward to traveling after they retire because they are no longer are limited by the number of vacation days. You can go whenever you like for how long you want.

Many people (including myself) look at retirement as the best time of their lives, a time for adventure and travel. I believe that one of the biggest benefits of retirement is the freedom to explore the world and expand your horizons.

In today’s world, a new generation of adventurers has emerged – senior travelers. They are brave, resilient, and excited about fulfilling their childhood dreams.

Career obligations, family life, and financial matters prevented them from actually doing it. But retirement brings freedom, and they do not wait any longer to explore the world.

Do you have a retirement bucket list?

I have found it useful to create my retirement bucket list. That is a list of things I want to do and see in our local area and other countries.

I like to keep my bucket list updated with the name of new places I learned and the dates we want to travel there. Most of the time, Roman and I feel excited when discussing our travel plans and the places we want to visit.

A few ideas from my retirement bucket list:

Live in Paris for three months
Learn the French language
Plan the three months road trip across Italy
Take cooking class in Spain and learn how to cook paella
Write an e-book and self-publish it
Visit Brazil during the carnival and learn how to dance salsa
Learn how to grow a vegetable garden
Go on a Safari in Africa

Here are a few related posts you might want to read:

Learn something new.

Many pre-retirees are afraid to be bored in retirement, and I can relate to that feeling.

Most of us spend our lives dedicated to responsibilities. We often forget how to live outside of our comfort zone.

I read that learning something new every day is an important part of personal growth. Retirement gives us the freedom to get out of that comfort zone and add something new to life.

If you are getting ready to retire, think about how to structure your days. Plan to allow yourself of trying something new and even uncomfortable like going back to school or learning a new language.

Here is a list of ideas:

Learn how to play a musical instrument
Start (or join) a book club
Learn how to paint
Take a pottery class (a photography class)
Take a cooking or baking class
Write a poem or an e-book
Learn new digital skills – open an Instagram or Twitter account.

4. Spending time with friends and family

Retirement can be a challenging time for relationships.

When you stop working you will leave most of your friends at work behind. You have spent many hours with colleagues at work. Unfortunately, many will disappear from your everyday life the day you leave. It will take a lot of effort from both sides to keep friendship, once the common purpose of work is gone.

Growing older could be lonely unless you have support, love, and even friendship from your family.

Do you have a good relationship with your spouse If you are married? Are you close to your children and their families? Do you spend enough time with your grandchildren?

Ask if you can go to the game or concert with your kids and grandkids. Consider a family vacation together. Spend all holidays and other celebration times together.

Do you stay connected with other parts of your family like your brothers or sisters? Do you keep in touch with them regularly if they live far away? What effort do you make to stay in touch with them?

Unfortunately, many of us spend more time on Facebook, Instagram, Twitter to stay informed and connected with former classmates or colleagues because they post often rather than spend time with people who are important to us.

I recently read that one of the greatest regrets of people who are getting closer to the end of their lives is that they didn’t spend enough time with their loved ones.

Life is short! Make sure that you spend enough time with the most important people in your life.

What is the most important part of your retirement? Share your thoughts and ideas with us in the comments.

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