Tips From Pros to Build an Easy Low-Cost Retirement Plan

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Saving for retirement can be made easy with these simple tips from professionals.

Saving for retirement can be made easy with these simple tips from professionals, according to CNBC.

Planning how to spend retirement funds so that it doesn't run out is almost harder than saving. Experts have found that Americans have the ability to build a simple, low-cost retirement plan using only Social Security and savings.

The best retirement strategy combines two concepts, said Wade Pfau, a professor of retirement income at The American College of Financial Services. The first concept involves setting up a "floor" of income using Social Security to cover fixed costs. The second concept involves using an investment portfolio to cover discretionary spending. “This is an easy, simple way that people can have a retirement strategy that approximates the [ideal] academic strategy,” Pfau said.

Social Security is a focal point of this strategy. For many middle-class retirees, Social Security provides anywhere from half to three-fourths of their total retirement income. Middle-class retirees are anyone with between $100,000 and $1 million in retirement savings.

Retirees should plan out their fixed costs to ensure that social security is able to cover these expenditures. Social Security payments are guaranteed for life and follow inflation, which doesn't decrease buying power. Aim to “get as much of that as you can from Social Security,” according to David Blanchett, the head of retirement research at Morningstar Investment Management. Americans can claim Social Security as early as age 62, but each year a person waits the amount grows by 8 percent annually.

The second concept with an investment portfolio is to use these savings to fund any fun activities. This money can be invested to track the S&P 500 index fund, a riskier approach, but with high upside. Retirees can withdrawal from this portfolio each year based on their life expectancy. The IRS has posted helpful guides, such as a "required minimum distribution worksheet, to help retirees plan out their finances.

These simple tips can help all Americans plan for retirement and ensure that they won't run out of income.

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Economics, Finance and Investing

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