Let’s say a recently retired couple in their 60s wants to buy a home in Florida. To do this, they should clearly delineate the funds for buying the home from the money used to generate income over the next 20 years. Money for real estate or big vacations should be accessible in a lump sum earlier in retirement versus a systematic distribution that should be earmarked for the basics needs of everyday life.
That’s because, on average, it gets harder for a couple to trek to and from Florida each winter when they are in their 80s versus their 60s. They wouldn’t want to extend the timeline for purchasing a vacation home or cruise by waiting to accumulate the cash via systematic distributions.
As you plan for retirement, think about how to control your funds once you need to withdraw them for expenses. Many 401(k) plans restrict the number of distributions you can take in any year. Plans often permit only one lump-sum distribution each calendar year and one change to a systematic distribution. One strategy is creating an adequate source of discretionary income for the earlier years of retirement. It’s unwise to buy a mutual fund, which you might pay 5 percent of your investment to get into, and then turn around and withdraw the money in three months for a cruise or overseas vacation. Ideally, you want easy access to chunks of your money. This leaves fixed-income sources of cash working for you in your later years.
Here’s something else to plan for. Assume after you retire, you become bored and choose to return to the workforce. Usually, this doesn't have a major effect on a person’s retirement assets. But sometimes, it creates issues with government benefits such as Social Security.
According to “Working After Retirement for Dummies,” you could end up with reduced benefits if you return to work before full retirement age. If you go back to work before full retirement age and are collecting Social Security, the Dummies authors write “your benefits will be temporarily reduced by the Retirement Earnings Test (RET).” Once you reach full retirement age, though, the authors say you can work as much as you like without affecting your Social Security.
Managing Your Retirement Can Become Your Next Job
It can be a full-time job watching the performance of your money across many accounts, but some retirees enjoy the challenge. The research and management of a portfolio can keep your mind sharp. Others prefer to focus on volunteering, vacationing and hobbies. If you don’t plan on being the researcher behind your portfolio, then find a professional you trust who will help you compartmentalize your money to meet your short- and long-term retirement strategies.
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