NEW YORK (MainStreet) — What do you hope to experience during your golden years? Perhaps you dream of spending your days playing tennis, dining out and traveling to exciting destinations. In theory, retirement should be the time in our lives to enjoy the fruits of our labor at long last, but some older Americans struggle to stay afloat financially after leaving the working world.
The good news: there are ways to enjoy a fabulous retirement without going broke—all it takes is some practical financial planning. Read on for six essential money-management tips from the pros.
Develop a Smart Distribution Strategy
If you have a tax-deferred retirement plan, such as a traditional IRA or a 401(k), it's important to develop a smart strategy for making withdrawals from your fund (called "distributions"). You should keep in mind that distributions will be taxed as income, and you'll generally have to start making required minimum distributions (the minimum amount you must withdraw from your account each year) when you reach age 70.5, or else you'll face harsh tax penalties.
If you're in good health and can afford it, waiting to make distributions until age 70.5 allows more tax-sheltered years for your retirement money. However, sometimes it makes more financial sense to start taking money out of your retirement account sooner."In many cases if somebody's retired, they actually end up paying less in taxes by taking some distributions prior to age 70.5 as opposed to waiting until 70.5," says certified financial planner Gary Plessl, co-founder of Houser & Plessl Wealth Management Group in Allentown, Pa. "Especially if they retire before Social Security starts, because from a tax standpoint they're not even getting the Social Security income yet, so they're actually in a lower tax bracket."
It's a good idea to speak to a financial planner to figure out the right distribution strategy for your unique financial situation.