St. Patrick’s Day is right around the corner and while the holiday can be cause for celebration, it can also be a good reason to reflect on your personal pot of gold – that is, your retirement funds – and how you can make it last once your working days are over.

A good place to start is to think of your retirement in three phases. Why?

Just as you spent money differently when you were 45 than you did when you were 25, it’s important to realize that your spending habits and financial needs will change as you progress through your retired years.

Create a distribution strategy that includes specific amounts of money for each phase to help reduce the risk that you’ll outlive your nest egg. Think of the first phase as the “freedom” phase – during these years, you can enjoy traveling, hobbies and adventure. The next phase is the “waiting room” phase, a time marked by more visits to the doctor and accumulating healthcare expenses. Many term the third phase as the “spiritual” phase when you can anticipate staying home more, winding down and enjoying memories with loved ones.

Next, make a plan for Social Security and other guaranteed sources of income and optimize your approach in order to withdraw as little as possible from your other retirement accounts. The idea is to close the “income gap,” which is the difference between what you’ve built up in your investment accounts and the amount of income you’ll actually need in retirement. A critical aspect of this process is understanding the details of what to expect from Social Security – rules about filing procedures and withdrawals have changed and it’s important not to be blindsided by these modifications.

Government requirements are frequently overlooked when planning for retirement and can be costly if you don’t adequately prepare for them.

One of the most typical mistakes is not understanding what you need to do when it comes to your Required Minimum Distributions (RMDs) – once you turn 70½, you must take an RMD from your IRA and 401(k) each year and if you forget to do this, it could end up costing you 90% of the RMD amount (depending on your tax bracket) due to income taxes and a 50% penalty. You can defer your first RMD until April 1 the following year you turn 70 ½, but you must take it by Dec. 31 in subsequent years – and even though you can postpone your first RMD until the following year, taking two in one year could increase the income tax you owe. Along the same lines, one of the most common fiscal duties during retirement left unprepared for is taxes. When calculating retirement living expenses, it’s important to be mindful of how big a bite state and federal taxes can take out of savings and that your withdrawal strategy can make a big difference in what you ultimately pay to Uncle Sam.

Finally, plan to stay invested as a retiree, because you’ll need the extra growth potential from continuing to invest in a mix of stocks and bonds.

Keep in mind that the cost of living could double during a 20-year retirement and that stocks have historically outpaced inflation.

This St. Patrick’s Day can be a reminder that you shouldn’t just rely on the luck of the Irish to protect your retirement pot of gold. Be sure you’re taking the necessary steps to make it last so you can have a better chance of enjoying the retirement you’ve worked hard for.



The above article is not legal advice and employees of Financial Engines are not tax professionals. Readers should consult with a tax professional prior to making any legally binding decisions.