Living in retirement
Retirement is an achievement. Get the information you need to help you reach retirement goals and enjoy everything you’ve worked for.
How to create an effective retirement income strategy
You’ve made the transition from saving to living off your savings. Now, you’d probably like to know you’re doing as much as possible to make your money last. That’s where retirement income planning comes in.
An effective retirement income strategy can help you withdraw, spend and invest your savings for reliable cash flow and a potentially better tax outcome. It can also help you grow your nest egg to generate additional income, if you need to.
Here are four steps for creating an effective income strategy, according to the Schwab Center for Financial Research:
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1. Plan your spending
Create a financial plan based on your goals, expected spending, and how long you need your money to last.
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2. Choose your investments
Build a diversified portfolio that takes into account your desired growth, income, risk and timeline.
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3. Tap your income sources
Generate a reliable income stream by tapping your entire portfolio in tax smart ways.
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4. Update your plan
Monitor and adjust your plan and portfolio regularly to make sure your money lasts, regardless of life or market changes.
What to do about required minimum distributions (RMDs)
Starting at age 70½ (or age 72, if you turn 70½ after 2019), the IRS requires you to take required minimum distributions (RMDs) from all of your tax-deferred retirement accounts. Tooltip
This means you’ll need to withdraw a certain amount of your savings each year, or risk owing a 50% IRS penalty.1
The amount you’ll need to take out depends on your tax-deferred retirement account balances and current age.
Here's an example:
Let’s say the RMD for your retirement accounts is $7,000 this year.
If you don’t withdraw $7,000 from the right accounts by April 1 of next year, the IRS could charge you a penalty of up to 50% of the amount you were supposed to withdraw. In this case, your penalty could be as much as $3,500 (50% of $7,000).
The amount you’ll need to take out depends on your tax-deferred retirement account balances and current age.
Here's an example:
Let’s say the RMD for your retirement accounts is $7,000 this year.
If you don’t withdraw $7,000 from the right accounts by April 1 of next year, the IRS could charge you a penalty of up to 50% of the amount you were supposed to withdraw. In this case, your penalty could be as much as $3,500 (50% of $7,000).
Here's when to take your RMDs to avoid the penalty:
If you turn 70½ after 2019, take your first RMD by April 1 of the year after you turn 72.
If you turned 70½ in 2019, take your first RMD by April 1, 2020—and take another RMD by December 31, 2020.
If you turned age 70½ in 2018 or earlier, continue taking your RMD by December 31 each year.
Learn more about RMDs—including three strategies to reduce your tax burden.
How to get started with estate planning
Putting an estate plan in place is critical to make sure loved ones can carry out your wishes, if needed. But it doesn’t have to be complicated.
Here are four things you can do to get started:
Common questions about Social Security and health care costs
⬛️ When should I start taking Social Security?
You can start taking Social Security as early as age 62. But you’ll receive a smaller check each month than you will if you wait until your full retirement age. If you wait until after your full retirement age, your Social Security benefit will increase by about 8% for every year you delay, up to age 70. After age 70, there’s no increase for delaying further.
⬛️ Can I change my mind after starting Social Security benefits?
If you take benefits but decide you no longer need them, you can pay back the money you received and restart your benefits later at a higher amount. But you can only do this once, and you must withdraw your application within the first 11 months after you file.
You’ll also have to pay back any taxes or Medicare premiums that were withheld. For more information, visit the Social Security Administration (SSA) website at www.ssa.gov.
⬛️ Can I keep taking Social Security, if I go back to work?
Yes. But if you haven’t reached full retirement age, earning a wage might reduce your benefits. Here’s how it works:
If you go back to work before full retirement age, your Social Security benefits will be reduced $1 for every $2 you earn above the annual limit ($17,640 in 2019).
In the year you reach full retirement age, your benefits will be reduced $1 for every $3 you earn above a higher limit ($46,920 in 2019). But only until the month you reach full retirement age.
Starting the month you reach full retirement age, your benefits will no longer be reduced (regardless of how much you earn).
What's your full retirement age?
⬛️ How can I estimate future health care costs?
Medicare is a big piece of the puzzle when it comes to retirement health care costs—but it doesn’t start until age 65, won’t cover everything, and has out-of-pocket costs.
Here’s what you can expect to pay, before and after Medicare kicks in:
With Medicare or other health insurance, your costs will include insurance premiums and out-of-pocket expenses your insurance doesn’t cover, like a deductible, copays and coinsurance.
Source: Schwab Center for Financial Research. These estimated costs are for general informational purposes only and should not be considered an individualized recommendation or a personalized estimate. Your healthcare costs will depend on a number of factors, including inflation and your specific situation. For specific advice, we recommend consulting with a financial planner.
Here are 5 more ways to prepare for retirement healthcare costs.
⬛️ How can I cover health care costs if I retire before age 65?
What you can do next
Explore our estate planning section.
Use our RMD calculator to help estimate your annual distributions.
Get help with your plan and portfolio from our robo advisor.
Important Disclosures
1 If you’re age 70 or older and still working, you may be able to delay your RMD for some types of employer plans, until you retire.
Investing involves risk, including loss of principal. The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.
The information provided is not intended to be a substitute for specific individualized tax, legal or investment planning advice. Where specific advice is necessary or appropriate, Schwab recommends that you consult with a qualified tax advisor, CPA, financial planner or investment manager.
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