6 Ways Retirees Can Keep Their Wealth Longer in Retirement

Enjoying a comfortable retirement doesn’t just mean saving a lot of money for retirement before you leave the workforce — it also means managing that wealth wisely once you are retired.

Smart money management might be more important in retirement than in any other period of your life because you need to make it last a long time, with fewer opportunities to bolster your income.

Here are six ways you can keep your wealth longer in retirement.

Just because you’re retired doesn’t mean you have to claim Social Security benefits immediately. The earliest you can file for benefits is age 62, but waiting to file as long as possible helps ensure a bigger monthly payment.

After you reach full retirement age — currently 66 or 67, depending on your birthdate — your benefit will rise by 8% a year up to age 70. Waiting until age 70 to claim Social Security will guarantee the biggest check possible, and increase your total monthly payment by more than three-quarters compared to collecting at age 62.

At the same time you are maximizing your retirement income, make a plan to minimize your fixed expenses such as housing, utilities, insurance and property taxes. This might mean moving to an affordable retirement destination to avoid spending more than you can afford.

Conventional wisdom holds that when you retire, you should load up on low-risk investments such as bonds, money market funds, CDs and Treasury bills. But there’s nothing wrong with chasing higher returns by putting some of your money in stocks or mutual funds.

“Over a retirement of 30 or more years, a portfolio that’s all cash and bonds can barely keep up with inflation or the likelihood of rising health costs,” Anil Suri, a managing director for the Chief Investment Office, Merrill and Bank of America Private Bank, noted in a blog for Merrill Lynch.

Taking a proactive approach to tax planning in retirement can help you save thousands of dollars over time. Here are some things to keep an eye on:

• If you earn outside income while collecting Social Security, you could get hit with additional taxes if you cross a certain threshold before reaching full retirement age. For single tax filers, Social Security benefits aren’t taxed if your provisional income is less than $25,000. That rises to $32,000 if you’re married and filing a joint return. Up to half of your Social Security benefits might be taxable if your provisional income is $25,000 to $34,000 for single filers, or $32,000 to $44,000 for joint filers. Anything above those income levels, then up to 85% of your benefits could be taxable.
• If you are still working, consider whether you should contribute to a pretax retirement account such as a traditional individual retirement account or 401(k) or an after-tax retirement account like a Roth IRA or 401(k). For example, if you expect to have more taxable income when you retire, you can reduce your taxes by contributing to a Roth account so the distributions won’t be taxed.

Consumer prices are almost certain to rise during your retirement, and if you don’t account for that ahead of time you could see your money lose a lot of its spending power. Merrill Lynch recommends adding assets such as gold and real estate to hedge against inflation.

As Merrill Lynch noted, about half of current retirees will reach age 92 and another 25% will see age 97. About 70% of those turning 65 today will need some form of long-term care in their lifetimes, according to the U.S. Department of Health and Human Services. To help cover future care costs, consider buying long-term care insurance, or at least set aside a certain percentage of your savings to cover future care costs.