Before retiring, I always pictured retirement as casual, unplanned days of working in the garden, writing and getting together with friends. These would be interspersed with travel to visit grandkids and explore different parts of the world. Above all was the idea that I didn’t have to think about money.

Notwithstanding the many lifestyle changes required by COVID-19, actual retirement is different. Whether you arrive at retirement age needing to continue to fill your coffers, or your money decisions are along the lines of whether to fly coach or business class, you still have to deal with money decisions. Like me, you may have your own misconceptions.

Social Security

Topping the list of retirement misconceptions are when to take Social Security. The short answer is, you should begin taking Social Security distributions at age 70, unless. This reasoning is strictly based on the numbers. Between your FRA (Full Retirement Age) and age 70, your benefit increases 8 percent per year, in addition to any cost of living increases declared. There is no other such essentially riskless return, so it’s a no-brainer...unless the “unless” comes into play. 

If you are depending on Social Security to meet your basic living needs, then by all means begin your benefit at your FRA. You can even start as early as age 62 (or age 60 in certain circumstances). Be aware that before your FRA, your benefit will be permanently reduced.

The total lifetime benefit is designed to be the same actuarially, no matter when you begin drawing. Thus, if you expect to have a shorter lifespan (perchance a high genetic propensity to terminal diseases), you could choose to collect on the early end. Or, if you think COVID-19 or other problems will stymie the federal government’s ability to perform on its obligations, you could collect earlier to hedge your bets. For most of us, a higher benefit accrues to those who are patient.

Diversify

The second source of angst around retirement planning is where your funds should be kept when you retire. Do you want all your retirement funds transitioned into a private annuity so that you don’t have to worry about them? That appeals to my sense of a no-worries retirement. But in reality, you’re then subjecting yourself to the business acumen of decades with a single private insurance company. Instead, security comes in diversification. The ideal portfolio is one in which you have several options for drawing an annual income. 

One income source is guaranteed payments such as annuities, pensions and Social Security. Statistics show that current retirees who had average earnings depend on Social Security payments to support 40 percent of their regular spending. Up to 85 percent of your benefit will be taxed at your income level.

Another source is retirement accounts like 401(k)s and IRAs, accumulated from years of pre-tax contributions with employers or self-employment. It is tempting to just simply leave the funds (if allowed) under your company’s retirement umbrella. But, it’s important to examine the fees first. You may be better off rolling the funds into an IRA that you can manage apart from your former employer.

You’re required to withdraw a certain percentage of each account beginning at age 72 (a 2020 tax code change from 70). This is your RMD: the Required Minimum Distribution that will be taxed at withdrawal. It’s a good idea to manage these withdrawals over time to minimize the tax.

A third source for paying expenses is any other personal banking or investment accounts consisting of post-tax funds. When you consider these three sources of funds, you can balance the share of each depending on the impulses of the tax law each year. A tax accountant can let you know if, for your situation, this is worthwhile to consider.

Fixed income

Within your accounts, how should money be allocated as a senior? Surprisingly, the answer is not necessarily “all in fixed income.” In fact, the best time to be most conservatively invested is right when you’re on the cusp of retirement: around five years before until five years after you retire. This decade is the most exposed in terms of how long your money will need to last and what unknowns will happen to shake your good planning.

For instance, if you’re in that period now, a heavy stake in stocks will affect your future more than if you have attained the ripe age of 85. COVID-19 is likely to wreak at least as much havoc as the 2008-2009 recession, but only if you can’t afford to just wait it out while spending non-market cash.

A generation or more ago, we might have hung up our worry hats at the door of whichever adult child agreed to take us in. Now we prefer our independence, but with that freedom comes responsibility.