3 key decisions that could make you richer in retirement


IAs you plan for retirement, you will be faced with a number of important decisions that can be difficult to make. But it is essential that you give them a lot of thought.

These three choices, in particular, have the potential to improve your retirement. But if you botch them, you could find yourself strapped for cash for life.

1. The age at which you apply for social security

The monthly Social Security benefit you are entitled to upon retirement will depend on how you have earned your income over your top 35 most profitable years in the workforce. But that’s not the only factor that goes into determining the benefits. Your filing age will also play a role.

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Once you reach full retirement age, or FRA, you are entitled to your full monthly allowance based on your salary history. But you don’t have to wait for FRA to register for social security. You are allowed to claim your benefits from the age of 62, but for each month you deposit before FRA, these benefits are reduced.

The reverse will happen if you delay your deposit after FRA. In this case, each month you stop will result in an increase in your benefits, up to the age of 70.

Choosing a Social Security filing age that best fits your plans and goals, as well as your circumstances, is crucial. If you’re worried that your nest egg is not enough, you might want to over-rank later. And if you have a good amount of savings, filing earlier might be perfect for you. But take a long time to land on the right age to start collecting these benefits.

2. The pension plan you choose

Taxes are a huge burden on some seniors. It could therefore be advantageous to choose a retirement savings plan that minimizes them.

If you house your retirement savings in a traditional IRA or 401 (k), you will get initial tax relief on your contributions. But your withdrawals will be subject to tax during retirement.

On the other hand, if you choose to keep your savings in a Roth IRA or 401 (k), you will forgo tax relief on your contributions but will benefit from tax-exempt withdrawals in retirement. And if you expect to have a lot of other sources of taxable income, a Roth might be the best bet.

Of course, you don’t have to choose one or the other. You can choose to keep some of your money in a traditional pension plan and host the rest in a Roth account. This could give you the best of both worlds from a tax standpoint.

3. The way you invest your retirement savings

Playing too conservatively with your retirement savings could cause you to run out once you get into old age. Even if you’re the risk averse type of person, you might want to step out of your comfort zone and stock up on stocks in your IRA or 401 (k) while retirement is still many years away.

Imagine that you contribute $ 500 per month to your savings over 40 years. If you bet a lot in stocks, you could manage to get an average annual return of 8%, which is a little lower than the stock market average. That would, in turn, leave you with a nest egg of 1.5 million to enjoy.

But if you bet heavily on bonds, you might only see an average 4% annual return in your pension plan. All other things being equal, this would reduce your nest egg to $ 570,000. It’s not pocket money, but it’s a far cry from $ 1.5 million.

Weigh your options carefully

The choices you make before retirement could have a big impact on your old age. Be aware of when you apply for Social Security, where you keep your retirement savings, and how diligently you invest the money you use. Hopefully, you’ll make a series of smart decisions that will help you get the most out of your retirement.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


About Teresa G. Wilson

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