If your circumstances permit it, you can continue to save for your future for many years after your retirement.
We tend to think of retirement as an event. One day you are working, and boom, the next day, you’re retired.
In reality, retirement is nothing like that. Sure, there is a point at which you, say, start claiming Social Security, but for most people, work doesn’t so much drop off a cliff as it does ease off.
Long gone are the days where you leave your job of 40 years and then go home forever. The arc of retirement for many people involves easing out of work commitments, moving to more supplemental income, and gradually phasing that out over a period of time.
Similarly, when it comes to saving for retirement, we also tend to think of it as a binary. You are either “saving for retirement” or “spending your retirement”.
But this isn’t true either, because you can still save for your retirement while in retirement. And you might want to seriously consider doing this if it works for your own circumstances.
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How can you save for retirement in retirement?
Spending all your money and then running out of it is no one’s idea of a good retirement.
I want you to be able to save money for your future. As long as you have a future (and that means literally everyone reading this) that means that you have something worth saving for.
And because retirement is a process more than an event, this means that you don’t have to stop saving money.
I want you to be aware of every possible tax advantaged saving solution for you, so you can maximize your money!
Anyone at any age can put money in a savings account. But why not find ways to actually earn a better return on that money? It’s possible.
The reason to save for retirement during retirement is to make the most of the money you have, so you will have more of it.
You can contribute to an IRA
Earned money means real job income, and not pensions, annuities, Social Security, or retirement withdrawals. You gotta have a job.
And you can contribute up to the maximum of $7,000 (which, at the time of writing, is the maximum if you’re over 50, which I’m assuming you are) or the amount of money you earned, whichever is less. So if you made $5,000 this year, you could only contribute that much to an IRA.
Presumably, if you’re in retirement, you’re not earning a salary that covers your entire living expenses. You’re probably making some retirement withdrawals.
And if you’re 72 years old or over, you probably have to make some retirement withdrawals, because of Required Minimum Distributions, or RMDs.
But what if you have to withdraw more money than you need? You don’t decide what the RMDs are, after all. It’s based on your age.
If you have extra money, and you have earned income, why not pour it right back into an IRA?
You can contribute to either a Traditional IRA or a Roth IRA. I’m biased toward a Roth IRA, but if you have enough spare money to be able to fund an IRA in retirement, you might as well use a Roth, because it’s not subject to RMDs.
So you can invest your money without the drag of capital gains.
Contribute to a standard brokerage account
Let’s say that you have more money than you need to live on (due to RMDs or Social Security), but you don’t have any earned income. So in that case you can’t contribute to an IRA.
But that doesn’t mean that you can’t do any investing.
Any extra money you have to put away for the long term can be invested with a standard brokerage account. So you can still buy and sell mutual funds, just without any tax advantages.
This means that if you sell/withdraw any money, you’ll be subject to capital gains taxes, which is usually 15% if you’ve held for over a year.
Now, that’s 15% more than you’d be paying on earnings in an IRA, but the returns you could get from investing in a solid index fund is still likely better than what you would get with that same money sitting in your savings account.
You’ve got time
The average age that people appear to be retiring the U.S. is 64. For Social Security, retirement age is defined as 67.
Actuarially, if you’ve lived to be 67, you’re likely to live to age 83-86, depending on your gender.
That’s a fair amount of time. And more specifically, that’s a fair amount of time where your money could be earning a decent return. That’s long enough to survive even a fair sized market downturn.
You don’t have to stop saving for the future once you’re in retirement. If you have the ability, keep saving!