When you begin taking Social Security is dependent upon your financial situation. However, for each year you delay benefits, until age 70, your monthly payments increase 8%. That is a significant amount and can be critical to your continuing income stream as you reach your 80’s, 90’s and beyond.
Employer Defined Benefit Pension Plans are not as prevalent today as they were in years past. However, if you are fortunate to have one, be sure to understand the various payout options before signing the paperwork. These decisions are almost always not reversible and can have a significant impact on the income stream to you and your spouse, especially after your death.
How much you withdraw each year for living expenses will depend upon what money is needed after Social Security and any employer retirement pension payments. The order that you withdraw from your various investment vehicles (tax free, tax deferred, taxable at ordinary rates, taxable at capital gains rates) should be well thought out so as to be as tax efficient as possible.
Asset allocation becomes critical in the years leading up to retirement and the first years after you no longer receive a paycheck. Think about the amount of risk you are comfortable with, but remember that your time horizon may be 30-40 years in retirement. Inflation has been low in recent years, but that does not mean it will continue to be so indefinitely.
RMDs – This is the abbreviation for Required Minimum Distributions. This refers to the amount you are required to withdraw from your retirement accounts beginning the year you turn age 70 ½. The penalty for not taking your RMD, or not taking enough, is extremely high.