Make your retirement savings last

You’ve worked hard and saved for the future — now you need to make sure your savings last the rest of your life. By understanding the risks you face, you can make smart choices about how much to withdraw and how to handle unexpected financial challenges.

The financial implications of a long life

According to the National Center for Health Statistics, people today can expect to live more than 30 years longer than they did a century ago. Individuals who reached age 65 in 1950 could expect to live an average of 14 years more, to age 79; now a 65-year-old might expect to live for roughly an additional 19 years.1

A long life can be a wonderful thing. But it does add a challenge to retirement planning prompting you to ask yourself: how long will my savings last? 

Here are some strategies to consider that may help your savings last longer for you.

Ways to save for retirement

Determine a sustainable retirement withdrawal rate

A smart, conservative withdrawal plan can help. Working with a financial advisor to decide how much to withdraw, which accounts to take the money from, and when to do so can help secure a comfortable retirement for you and your spouse or partner, and help ensure your retirement income lasts as long as possible.

How much can you afford to withdraw from your savings each year will depend on your individual needs. Many retirees have an unrealistic idea of the amounts they can withdraw annually without running out of money. Aggressive withdrawals are generally unsustainable — especially when the markets are down.

Plan for health care expenses in retirement

The cost of health care in America is rising astronomically. Combined with longer lives and less insurance coverage, this presents a potentially huge expense for retirees. What can you do?

A good approach is to factor health care costs into your retirement expenses. The average couple age 65 with median prescription drug expenses needs to save $265,000 to have a 90% chance of having enough for health care expenses in retirement, according to the Employee Benefit Research Institute.2

By accounting for these expenses in your retirement plan, understanding your options for Medicare or other health care solutions, and/or securing long-term care insurance, you may be able to avoid tapping your other savings.

Prepare for the unexpected

While no one can predict the future, you can prepare by taking a few simple steps. For example, always keep enough cash to last six months easily accessible. With this cash reserve available, you may not have to deplete your main savings in the event of an emergency, or be required to liquidate longer-term investments.

Your Ameriprise financial advisor can help you develop a plan for making your savings last as long as possible, protecting your assets from health care expenses and preparing you for unexpected events with easily accessible savings accounts. To learn more, find an Ameriprise financial advisor in your area.

Disclosures

1 National Center for Health Statistics, Health Status and Determinants, Mortality, 2015.
2 Source: Savings Medicare Beneficiaries Need for Health Expenses: Some Couples Could Need as Much as $350,000, published by EBRI, January 31, 2017, Vol. 38, No. 1.
Ameriprise Financial Services, Inc. Member FINRA and SIPC.

Managing your taxes in retirement

Your tax situation can change rapidly throughout retirement. Applying appropriate tax strategies can help you learn how to reduce the taxes you owe so you keep more of the money you’ve earned and invested.

Knowing what is and isn’t taxable

Understanding which sources of retirement income are taxable and which are non-taxable can be tricky. These guidelines can help you get started by looking at some typical retirement income sources. When evaluating your options, be sure to consider all sources of income, and work with your advisor and tax professional to determine what makes sense for your unique situation.

Taxable
Non-taxable
Social Security – up to 85% of your Social Security benefits may be taxable depending on the amount of additional income you have from other sources
Social Security – if your combined income is below certain limits

Withdrawals of earnings and pre-tax contributions from IRAs, 401(k)s*, and other retirement plans

*Special rules apply to appreciated employer securities in qualified retirement plans. 

Withdrawals of after-tax contributions from 401(k)s, IRAs and other retirement savings plans (whether withdrawals are considered to be from after-tax or pre-tax contributions are based on the law and will depend on ordering rules applicable to the account)
Pension payments
Qualifying withdrawals from Roth 401(k)s, Roth IRAs, and Roth 403(b)s

To help you determine what, if any, part of your Social Security is taxable, the IRS has created a series of worksheets found in IRS Publication 915 (Social Security and Equivalent Railroad Retirement Benefits). The calculation is part of filling out your 1040 and is found in the Form 1040 instructions.

Minimizing taxes when possible

Work with your tax advisor to help reduce the amount of taxes you may pay during retirement by considering the following:

  • Possible advantages of deductions available to you.
  • If you itemize, use charitable gifts to potentially lower your taxable income.
  • Realize long-term capital gains if your income falls below the threshold for your filing status, so that they will be taxed at 0%.
  • If you’re in a higher tax bracket, consider selling stock at a loss to offset current gains and up to $3,000 of ordinary income. Unused capital losses can be carried forward.
  • You may be able to lower your lifetime taxes by spreading withdrawals from your IRA or 401(k) over your lifetime (even before age 70-1/2).
  • The sale of your home. You may be able to exclude capital gain on the sale of your primary personal residence up to $250,000 if you are single and $500,000 if you are married (and filing a joint return).
  • Investments in municipal bonds to generate tax-free income if you are in a higher tax bracket.1
  • Whether bunching itemized deductions in any given year may be beneficial compared to the standard deduction. Be sure to consider the increased standard deduction as a result of the tax reform legislation passed in 2017.

Sometimes it makes sense to pay taxes now to lessen your future tax liability, especially if you expect to be in a higher tax bracket in the future. If you might be in this situation, consider converting part, or all, of your traditional IRAs to Roth IRAs. 

It is important to note that significant changes were made to the tax code as a result of the tax reform legislation passed in 2017. Given these changes now is a great time to review your circumstances with your tax advisor. Additionally, many of the changes impacting individuals are set to expire after 2025 unless Congress acts. As tax laws and you situation change, it is important to remember to discuss with your tax advisor.

The benefits of working with a financial advisor and tax professional

Your advisor can help you balance your financial priorities with tax implications by helping you create a lifetime plan that meets both your personal and financial goals. Because your Ameriprise financial advisor understands your finances, he or she may also be able to recommend a tax professional for you. Working together, your Ameriprise financial advisor and your tax professional can help structure your investments and retirement distributions for tax efficiency.

Disclosures

Ameriprise Financial, Inc. and its affiliates do not offer tax or legal advice. Consumers should consult with their tax advisor or attorney regarding their specific situation.
1Interest income from municipal bonds is federally tax-free, though the alternative minimum tax may apply.  Interest income from municipal bonds is also generally state tax-free to residents of the state in which the municipal bond is issued, and generally taxable to residents of other states, depending on individual state rules.  Sales of municipal bonds can result in federal and state capital gains or losses.
There are risks associated with fixed income investments, including credit risk, market risk, interest rate risk and prepayment and extension risk. In general, bond prices fall when interest rates rise and vice versa. This effect is more pronounced for longer-term securities.
Withdrawals from traditional IRAs, 401(k) accounts, and other pre-tax investments prior to age 59½ are generally subject to a 10% IRS penalty on taxable earnings, though exceptions may apply.
Ameriprise Financial Services, Inc. Member FINRA and SIPC.

When should you start collecting Social Security?

Social Security is often associated with a retirement program, but you can use your benefits for other reasons. If you become disabled, you may use Social Security, or if you lose a family member, you may be eligible for survivor benefits. 

Learn more about Social Security benefits for you and your family







Determining your retirement age

Being aware of key retirement ages can help you prepare for the future.

Catch-up contribution age. You can make catch-up contributions to many retirement plans beginning in the year you turn 50.

 

403(b) and 401(k) withdrawal age. You can start taking penalty-free withdrawals from qualified retirement plans such as 401(k)s, 403(b)s and profit sharing plans after you left your employer in the year you turned 55 or later.

IRA withdrawal age. You can begin taking withdrawals without penalty from IRAs and qualified retirement plans.

 

Social Security benefits age. You can start taking reduced Social Security benefits.

 

Medicare sign up age. You should sign up for Medicare hospital insurance (Part A) 3 months before your 65th birthday, whether or not you want to begin receiving retirement benefits.

 

Social Security benefits age. You can start taking full Social Security benefits depending on your birth year. Any delay in applying for Social Security benefits, up to age 70, can qualify you for increased retirement benefits.

RMD age. You must begin taking Required Minimum Distributions (RMDs) from most retirement accounts.

 

Disclosures

Investment advisory products and services are made available through Ameriprise Financial Services, Inc., a registered investment adviser.
The initial consultation provides an overview of financial planning concepts. You will not receive written analysis and/or recommendations.
Ameriprise Financial Services, Inc. Member FINRA and SIPC.