Saving enough to retire is a significant achievement. But there are plenty of ways to further improve your retirement finances and lifestyle after you retire. Consider these retirement resolutions for 2017.
Remember required minimum distributions. Workers are required to take withdrawals from their traditional retirement accounts after age 70 1/2 and pay income tax on the distribution. The penalty for missing a distribution is a steep 50 percent of the amount that should have been withdrawn. Required minimum distributions must typically be taken by Dec. 31 each year, but you get extra time for your first distribution. Periodic payments or a lump sum can be used to meet the distribution requirement and avoid the penalty. “The people who take it out early in the year do it so they don’t forget. Those that wait until the end of the year want to try to maximize their tax-deferred growth,” says Todd Minear, a certified financial planner and founder of Open Road Wealth Management in Kansas City, Missouri. “Those who do it monthly tend to look to that money for cash flow purposes.”
[Read: How to Pay Less Taxes on Retirement Account Withdrawals.]
Consider charitable distributions. If you are 70 1/2 or older, you can avoid paying income tax on IRA withdrawals of up to $100,000 per year that you directly transfer to a qualifying charity. An IRA charitable contribution will also satisfy your minimum distribution requirement. “You can make a contribution directly from your IRA to a qualified charity without paying tax on that because that charitable distribution is not taxed,” says Melissa Ellis, a certified financial planner and principal of Sapphire Wealth Planning in Overland Park, Kansas.
Rebalance your portfolio. Many retirees invest in a mix of equities, bonds and cash based on how much risk of losses they are willing to accept. But your asset allocation may shift over time as you experience portfolio growth or declines. So you will need to periodically shift your money back to your target asset allocation. “Keep an eye on the stock-bond mix, and when it grows more than 5 percent, rebalance then,” Minear says. “If you are a 60/40 investor and it gets to 65 percent stocks, you might want to take some profits.” Some retirees also gradually shift their investment mix to become more conservative over time in order to prevent losses.
Adjust your drawdown strategy. A common rule of thumb is to withdraw 4 percent of your retirement savings each year and adjust that amount for inflation over time. However, some advisors say this rule should be tweaked slightly, and smaller withdrawals during periods of investment declines could help your investments recover faster. “Adjust that annual distribution down when the markets aren’t doing so well,” Minear says. “If the markets are down, I simply don’t increase my distribution by inflation that year.”
Delay 401(k) withdrawals if you’re still working. If you’re still working after age 70 1/2 and don’t own 5 percent or more of the company you work for, you are eligible to delay distributions from the 401(k) associated with your current job until April 1 of the year after you retire. “If you are still working, you don’t have to take a required minimum distribution from a 401(k) after 70 1/2,” Ellis says. “If you have rolled out the money from your 401(k) into an IRA , now it is under the RMD rules.” IRA withdrawals are required after age 70 1/2, regardless of your employment status.
[Read: 6 End-of-Year Retirement Planning Tips That Will Save You Money.]
Minimize fees. Take a look at the expense ratio of each fund you own. Consider pulling your money out of high-cost funds and selecting a similar lower-cost alternative. “Do an annual review of your aggregate expenses that you pay for fees on your funds and your investment transaction fees,” says Scott Smith, a certified financial planner and principal of Olympia Ridge Personal Finance Advisers in Rochester Hills, Michigan. “Make sure that you are getting your money’s worth for the fees you are paying, and make sure you are keeping costs as low as possible.”
Use Medicare’s free preventive services. Medicare covers a variety of preventive services with no out-of-pocket costs, including mammograms, bone mass measurements and flu shots. Medicare beneficiaries are also eligible for a free annual wellness visit. However, if a problem is discovered during the visit that requires additional testing or treatment, additional costs could be charged.
Shop around for a new Medicare Part D plan. Your medication needs might change over time. Medicare Part D plans also adjust their covered medications and out-of-pocket costs each year. So, the plan you signed up for at age 65 might not continue to be a good fit throughout your retirement. Medicare Part D beneficiaries can switch Medicare Part D plans once a year during the annual enrollment period from Oct. 15 to Dec. 7. “It’s worthwhile to review those options yearly just to see what is available now and to see how your situation has changed,” Smith says. “What you have now might be working great for you, but another company might offer something a little better.”
[Read: 5 New 401(k) and IRA Rules for 2017.]
Give back. Retirement provides an opportunity to spend your time in a meaningful way, and many retirees choose to volunteer. “Most organizations and nonprofits really need volunteers, so giving them time can really be more valuable than giving money,” Minear says. “Libraries, hospitals and schools are some good places to start to look.”
Leave a legacy. Many retirees make a plan for what they want to leave behind. In some cases this means providing a financial gift to heirs, while in others it’s writing a memoir or recording family history. “Get the camcorder and get the iPhone and do an interview with the grandparent so they can tell their story and leave an archive that you can revisit down the road.” Minear says.
Emily Brandon is the author of “Pensionless: The 10-Step Solution for a Stress-Free Retirement.”
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10 Retirement Resolutions for Retirees originally appeared on usnews.com
