3 Important Decisions That Could Make You Richer In Retirement

IAs you plan your retirement, you will face a number of important decisions that can be difficult to manage. But it is important that you give a lot of thought to them.

These three options in particular have the potential to shape your retirement for the better. But if you botch them up, you could find yourself in dire straits for life.

1. The age at which you applied for social security

The monthly social security benefit you are entitled to in retirement depends on what your income looks like during your 35 most profitable years of work. But that’s not the only factor that goes into determining benefits. Your registration age also plays a role.

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Once you reach full retirement age, or FRA, you are entitled to your full monthly benefit based on your pay history. But you don’t have to wait until FRA to sign up for Social Security. You can start receiving your benefits from the age of 62, but these benefits will be reduced for every month you submit before FRA.

The opposite will happen if you delay your filing beyond FRA. In this case, each month you stay increases your benefits up to the age of 70.

It is crucial to select a social security enrollment age that best fits your plans and goals, as well as your circumstances. If you’re concerned about missing out on your nest egg, you may want to move on to the filing side later. And if you have a healthy pile of savings, filing earlier might be good for you. However, take plenty of time to land the right age to receive these benefits.

2. The retirement plan you have chosen

Taxes are a huge burden for some seniors. So it might be worthwhile to choose a retirement plan that minimizes them.

When you place your retirement savings in a traditional IRA or 401 (k), you can get an upfront tax break on your contributions. But your earnings will become taxable in retirement.

On the other hand, if you want to keep your savings in a Roth IRA or 401 (k), you forego tax breaks on your contributions but benefit from tax-free withdrawals in retirement. And if you’re expecting many other taxable sources of income, a Roth might be a better choice.

Of course, you don’t have to choose one or the other. You can choose to keep some of your money in a traditional retirement plan and put the rest in a Roth account. This way, you can enjoy the best of both worlds from a tax perspective.

3. How to invest your retirement savings

If you play it safe with your retirement provision, you can come up short in old age. Even if you’re the risk averse type, you may want to get out of your comfort zone and top up stocks in your IRA or 401 (k) while retirement is many years away.

Imagine adding $ 500 a month to your savings over 40 years. If you bet heavily on stocks, you can get an average annual return of 8%, which is slightly below the average of the stock market. That in turn would give you a 1.5 million nest egg.

However, if you bet heavily on bonds, you may only see an average annual return of 4% on your retirement plan. If all other things are the same, that would shrink your nest egg to $ 570,000. That’s not pocket money, but it’s a world away from $ 1.5 million.

Consider your options carefully

The decisions you make before you retire can have a huge impact on your senior years. Think about when to make social security claims, where to keep your retirement savings, and how to invest the money you’ve been diligently wasting. If you are lucky, you will make a number of smart decisions that will enable you to enjoy your retirement to the fullest.

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The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.

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