Retirement expert details one of the 'main questions' she gets and her answers

·3 min read

The pandemic has led to a retirement boom — along with concerns over how to retire comfortably.

"One of the main questions that I get is: Can I afford to retire?" Katherine George, a financial advisor with Wealthstream Advisors, recently told Yahoo Finance Live (video above). “Can we take those extra vacations? Can I buy that second home?”

She noted that her clients are often anxious about whether they have enough money for retirement.

“A lot of people come to me and they’re scared because we spend most of our time accumulating assets and once you have to start de-cumulating assets, it can be scary,” George said.

She advised individuals to meet with a fiduciary financial advisor to make a financial plan when it comes to their future retirement expenses. But if they can’t afford a financial planner, there are some actions that they can do on their own to save for retirement.

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(Photo: Getty Creative)

Cash is king for retirement

Having a cash reserve that can last at least a year is important to saving for retirement, George said. She noted that workers should calculate how much money they’ll need for annual expenses when they retire and save accordingly with a year’s worth of cash in that amount or even more.

Once a person meets half of the goal of having a year’s expenses saved, they can recalibrate their stock portfolios and possibly sell some stocks for extra cash, Georg said. With a reduction in income, George cautioned retirees to have enough cash stashed away so they don’t have to sell stocks during a down stock market.

“Having enough cash to withstand the ups and downs of the stock market is crucial once you’re in retirement,” George told Yahoo Finance Live.

Tax issues to consider before retirement

Soon-to-be retirees should also think about the tax implications of their retirement income, George said. The amount of taxes retirees will pay on their income depends on what kind of retirement account they have.

For instance, a 401(k) account is taxed at ordinary income rates, or the same tax rate as a worker’s salary before retirement. However, taxable accounts, such as individual or joint accounts, can be taxed from 0% to 30% because they’re taxed at capital gains rates. George recommended that workers consult with an accountant to determine which account is best for tax purposes.

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(Photo: Getty Creative)

The worst retirement money mistake

The worst mistake retirees can make with their money is not keeping track of multiple retirement accounts accumulated over time, George said. Retirees should know “where your accounts are, what’s in your account, and [if] you’re maximizing all your benefits,” like pensions.

Before workers retire, they should take advantage of Roth 401(k) accounts that may be offered by employers to save the most money they can for retirement.

“It’s really beneficial, as soon as you can,” George said, “to take any after-tax or Roth savings from your 401(k) and roll it into a Roth IRA so that all of the growth can stay tax-free and in your pockets.”

Correction: An earlier version of this story was incorrect in quoting Katharine George as saying that IRAs are taxed between 0% and 30%. George said that taxable accounts, including individual and joint accounts, can be taxed at those rates.

Ella is the personal finance reporter for Yahoo Finance. Follow her on Twitter @bookgirlchicago.

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