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All Contents © 2019The Kiplinger Washington Editors
Planning for retirement is a long-term project with a lot of moving parts. It’s nearly impossible to anticipate every potential bump in the road.
One great source for information (and inspiration) is people who have already retired. Talking with current retirees about the “coulda, woulda, shoulda” lessons they’ve picked up along the way is a great way to prepare for your own journey.
In fact, Vanguard recently did just that. Vanguard blogger Julie Virta asked retired investors to share some things they would change if they had a “do-over.” That is, aspects of planning for retirement that they wish they’d done differently or not at all.
Take a look at some of their revelations. You’ll discover many real-world lessons about managing taxes, handling debt, planning for Social Security, preparing for emergencies, deciding how you will spend your time, and thinking long-term. It’s invaluable insight and advice that can help you make important decisions about your own future.
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Once you hit age 70½, you’ll have to start taking money out of your traditional retirement accounts. Those required minimum distributions, or RMDs, increase your taxable income, and may push you into a higher tax bracket.
One strategy to consider: You can sidestep RMDs and their tax impact by converting traditional retirement accounts into Roth accounts. When you do that, you’ll have to pay taxes on the amount you convert. And thanks to the new lower federal tax rates, now may be the perfect time to get started.
"I wish that I [had] started converting some of my 401(k) into Roth IRAs on an annual basis beginning when I retired at age 57,” says Ron E. “I was in a lower tax bracket than I am now as a result of taking RMDs."
Converting your 401(k) to a Roth account is quick and easy:
1. Roll over your traditional 401(k) accounts into a Vanguard IRA
2. Convert the IRA to a Roth according to a timetable that makes sense for you
"I think it’s best to do the conversion over a number of years to keep your taxes manageable," says Kathy S.
Another great way to reduce your post-retirement tax burden: charitable giving.
It’s true that under the new tax law, fewer people may want to itemize deductions on their federal tax returns. And that means fewer will be eligible to deduct their charitable donations.
In fact, retirees will need to make substantial donations or take other deductions (totaling more than the standard deduction of $12,000 for single filers, $24,000 for married couples, and $18,000 for heads of household) to take advantage of this tax break.
However, there’s still one way to get a tax advantage even if you don’t itemize. Just make a direct transfer from your traditional IRA to charity. You can donate your RMD or even more, up to $100,000 a year, tax-free. And if your RMD comes from a 401(k), you can roll over that account into an IRA and make your donations from there.
“I use this method to help me meet my tithe,” says Phil S. “It’s tax-free and counts toward my RMD.”
How you deal with debt is purely personal. For some, heading into retirement debt-free offers relief and security. Others prefer to invest their money rather than aggressively paying down debt, especially when potential investment returns could outpace the interest rate on their debt.
Generally, it makes sense to pay off high-interest debt, like credit cards, which can drain your savings and eat away at your net worth.
Paying off a low-rate mortgage, on the other hand, is a more complicated choice. Using money from your retirement accounts to pay off your mortgage could hurt you in the long run, especially if you’re under age 59½. Taxes and penalties kick in when you pull out retirement money early, and your future earnings will take a hit. A large withdrawal also could bump you into a higher tax bracket.
Even after age 59½, think twice about pulling extra money from your retirement accounts to pay off your mortgage. That’s especially true if your rate of return is higher than your mortgage interest rate.
There are pros and cons to keeping mortgage debt vs. paying it off. Some Vanguard investors are on the pro-debt side.
“I am so happy I chose to invest extra cash … rather than paying off my mortgage. My funds have done MUCH better,” says Bob M.
Monthly bills are a drag in retirement, but if your mortgage rate is lower than your investment return, consider keeping your money out of the house, keeping the tax deduction, and avoiding [the need for] a home equity loan in an emergency,” says Jim M.
While others are firmly anti-debt.
If you refinance a mortgage, don’t take money out or extend the time — just reduce the interest expense. I’m recently retired and still have a few debts. Ideally, they would all have been paid off by now,” says Craig M.
Delaying your Social Security start date puts extra money in your monthly check. The longer you wait, the bigger your payments will be.
Here’s how it works: If you retire at your full retirement age (which ranges from 66 to 67 if you were born after 1943), you’ll get 100% of your benefit.
Start collecting earlier than that — you can start as early as age 62 — and your benefit shrinks by about 6% a year. But for each year you delay taking a benefit beyond your full retirement age (up to age 70), you’ll receive a payment that’s about 8% higher. Ultimately, the difference between starting at age 62 instead of waiting until age 70 could be close to 60%.
Since most people are living longer than ever before, delaying Social Security may be your best bet. Vanguard’s retired investors tend to agree.
“It’s hard for investments to beat the 8% per-year increase that results from delaying payments,” says David H.
I made the mistake of taking my Social Security at age 62, not realizing how much more I would get every month if I waited. Whenever someone tells me that they are retiring, I urge them to find out the intricacies of Social Security benefits before deciding when to take them!” says Judith A.
Life happens while you’re making plans, and the same holds true for retirement. Surprise expenses crop up when you least expect them, so it’s important to be prepared for anything by saving more.
Some common surprises: substantial medical expenses, major home repairs, and adult children who suddenly need financial support. Any of these could put a huge dent in your retirement savings, unless you’re prepared for the unexpected.
By making smart financial choices before you retire, you’ll be putting a safety net in place to help you glide through tougher financial times.
“[I wish] I would have reined in my spending and increased my savings while I was married, and we were a high-earning couple. After divorce and a job loss, I realized with much regret that high earnings may not continue long-term,” says Lori D.
The point? Don’t just save; save as much as you can.
“Any adverse event can easily wipe out all of your savings,” says Adam N.
When you stop working, you’ll stop getting paychecks, and that’s usually the primary focus of retirement planning. But that’s not the only major change you’ll experience.
As important as it is to prepare for all of the financial pieces of the retirement puzzle, it’s just as vital to consider the non-financial pieces. For example, planning how you’ll spend your time is a key driver of happiness and satisfaction.
“Think a LOT about what to do with your time post-retirement,” Maria K. suggests. “I spent too much time thinking about the [money] part of it, so that when I finally got there, I was taken aback by what else I would do.”
As Brandon S. puts it: “Make sure you have something to retire to.” And as Rhonda S. says: “Your job was a large part of your identity. You need to have a plan to fill that in with something else!”
Finally, Rick W. sums it all up with this advice:
“Here’s what I have learned,” he says. “There are four important focuses to have a joy-filled retirement: They are physical, mental, spiritual, and financial.”
Vanguard’s mantra is to think long-term for a good reason. The day you retire is just the beginning, and this new life phase can last for 20 or 30 years.
Younger savers may have even more trouble prioritizing for a goal that feels so distant. But everyone should keep their eye on the long-term prize. Start by saving 12% to 15% of your annual income (including any employer contributions) for retirement. If that’s not doable right now, work up to it one day at a time.
“Live below your means,” recommends Paula M. “Who cares what your friends have. You don’t know how they sleep at night.”
And as you prepare for your retirement, pass along the lessons you’ve learned to the next generations. Your experience and insights can help them navigate even more successfully.
“There’s so much that’s out of our control (housing appreciation, market returns, etc.),” Katrina B says. “But our savings rate and where/how we invest our earnings is entirely within it!”
Take the advice from these retirement insiders to heart. Their insights come from experience and can help you avoid making the same mistakes they made.
Just understand that there’s no one “secret” to retirement success. A great retirement is the culmination of a lifetime of making goal-based decisions, achieving balance, being cost-conscious, and maintaining discipline.
And if you do make a misstep, listen to one final piece of advice:
“Don’t dwell on it,” says Paula M. “Fix it and get on with your plan.”
This content was provided by Vanguard. Kiplinger is not affiliated with and does not endorse the company or products mentioned above.
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