4 Genius Things People Do With Their Retirement Accounts After Retiring (And 4 To Avoid)
Written by
Cynthia Measom
Edited by
Joe Evans
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You’re finally at the finish line and ready to close one chapter and start another. But you still have decisions to make about your retirement accounts.
Keisha Blair, a Harvard-trained policy expert, economist, founder of the Institute on Holistic Wealth and host of the “Holistic Wealth Podcast,” said that as individuals approach retirement, their financial mindset shifts significantly.
“While the focus during the working years is often on accumulating wealth in retirement accounts, the transition into retirement requires careful consideration of how to effectively manage and utilize these assets,” said Blair. “Understanding what most retirees typically do with their retirement accounts and what they should be doing is crucial for ensuring financial security and well-being in retirement.”
Let’s dig deeper into some ways to make the best of your retirement accounts.
What Many Retirees Do With Their Retirement Accounts
“The decisions retirees make regarding their retirement accounts are often influenced by various factors, including financial goals, risk tolerance, health considerations and lifestyle preferences,” said Blair. “For many, the primary objective is to ensure a reliable income stream throughout retirement while balancing the desire for growth and flexibility.”
Blair said that the following choices are what many retirees default to.
Leave Their Money in the Employer’s Plan
Blair said that some retirees opt to leave their retirement savings in their former employer’s plan — especially if they are satisfied with the investment options and fees connected to the plan.
Roll Over Funds to an IRA
“Another prevalent choice is to roll over funds from an employer-sponsored retirement plan into an Individual Retirement Account (IRA),” said Blair. “This option often provides more control over investment choices and allows for greater flexibility in managing withdrawals.”
Take Lump-Sum Distributions
Blair said retirees may also opt to take a lump-sum distribution of their retirement savings.
“While this can provide immediate access to a substantial sum of money, it comes with tax implications and the risk of depleting savings too quickly,” she said.
Purchase Annuities
Blair noted another thing retirees might do is purchase annuities with part of their retirement savings to guarantee a steady stream of income for life.
“Annuities can offer peace of mind and protection against outliving one’s savings, but they also come with fees and limitations,” she said.
What Retirees Should Do With Their Retirement Accounts
Blair said that to make the most of their retirement accounts, individuals should adopt a holistic approach that prioritizes their long-term financial security and well-being.
“This approach encompasses not only financial wealth but also physical health, emotional well-being and social connections — core principles of Holistic Wealth,” she said. “Retirees and pre-retirees alike can benefit from reevaluating their financial strategies and embracing a more comprehensive perspective on wealth management.”
According to Blair, here are some options retirees should consider when making decisions about their retirement accounts.
Create a Sustainable Withdrawal Strategy
Blair explained that instead of retirees indiscriminately withdrawing funds from retirement accounts, they should develop a sustainable withdrawal strategy that balances income needs and asset preservation.
“This may involve calculating a safe withdrawal rate based on life expectancy, market conditions and anticipated expenses,” she said.
Diversify Income Sources
“Relying solely on retirement accounts for income may leave retirees vulnerable to market fluctuations and longevity risk,” Blair said. “By diversifying income sources, such as through Social Security benefits, pensions, rental income and part-time employment, retirees can create a more resilient financial plan.
Optimize Tax Efficiency
Blair pointed out that minimizing taxes is essential for maximizing retirement income.
“Retirees should strategically manage withdrawals from different types of accounts (e.g., traditional vs. Roth) to minimize tax liabilities over time. Additionally, exploring tax-efficient investment strategies and taking advantage of available tax deductions and credits can further enhance overall tax efficiency.”
Consider Long-Term Care and Healthcare Costs
“Healthcare expenses can significantly impact retirement finances, especially as individuals age,” Blair said. “Retirees should plan for potential long-term care needs and explore options such as long-term care insurance or health savings accounts (HSAs) to mitigate the financial burden of medical care.”
Final Take To GO
Blair said that making the transition from accumulating to distribution in retirement shouldn’t be taken lightly because it requires careful planning and consideration of various factors.
“By adopting a holistic approach to wealth management and embracing principles of financial literacy, individuals can make informed decisions that lead to a fulfilling and secure retirement lifestyle,” she said.
Caitlyn Moorhead contributed to the reporting for this article.
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