10 Overlooked Retirement Tips

Posted: June 6, 2012 at 11:16 am

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BOSTON (MarketWatch)The best way to save for retirement is to follow the usual advice: save more, work longer, delay Social Security and so on. But experts also say there are many little-known retirement tips worth following, too. Heres a look at 10 such tips that advisers say you shouldnt overlook.

1. Forget The Number

You are more than welcome to go about your life worrying whether youve saved enoughsay $1 million or $2 millionto retire. But thats not the number you should focus on, said Wade Pfau, an economics professor at the National Graduate Institute for Public Policies in Japan and a frequent blogger on retirement issues. There is no such thing as a specific wealth number that will suddenly allow you to retire, Pfau said. The income stream your wealth can support matters much more than how much wealth you have. The income stream supportable by a given amount of wealth varies with interest rates and other factors.

2. Dont rely too much on the 4% rule

Speaking of income, David Blanchett, a research consultant at Morningstar Investment Management, said taking out 4% from your retirement accounts might be a good starting place for an initial withdrawal rate. But revisit this withdrawal amount regularly, ideally on an annual basis, to make sure whatever the target income goal is still achievable, he said.

3. Think tax-efficient income

Think also about the tax efficiency of your retirement income, Blanchett said. Dividends, for instance, can be far more tax-efficient than bonds from an after-tax income perspective if they are qualifiedthat is, taxed at a maximum rate 15% vs. 35% for ordinary income. Thats yet another reason to hold them in an after-tax account.

But dont think only about generating tax-efficient income in retirement. Consider your withdrawal strategy from a happiness perspective. Ignoring required minimum distributions rules, common tax wisdom suggests drawing from taxable accounts first, then a Traditional IRA, and finally from a Roth IRA, Blanchett said. I think this makes sense and can definitely increase the available income, but its also important to have some tax diversification with respect to withdrawal moneys.

4. Social Security is a household decision

For married couples, research the various ways spouses can take Social Security, said Pfau. The week spent studying this matter could result in hundreds of thousands of dollars worth of extra lifetime Social Security benefits, he said, noting that its not usually a good idea for both spouses to begin Social Security as early as possible.

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10 Overlooked Retirement Tips

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June 6th, 2012 at 11:16 am

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