Today’s seniors can expect a longer retirement than their parents. Seniors have more years to finally do what you want to do, including travel, hobbies, and spoiling the grandkids. A longer retirement, however, means more years of money going out and a small or no paycheck coming in. For these reasons, seniors need to be smart about how they pay for their retirement years.

To help you set or adjust your own plans for affording retirement, you need to look at different sources of income and be aware of potential pitfalls. Keep in mind this is general guidance only. Your own need for retirement money depends on factors such as your health care costs or whether you plan to earn part-time income. As with any major financial decision, be sure to consult with financial advisors and loved ones to decide what strategies are best for you.

When considering Social Security and pension benefits, your first order of business is to determine the best time to start tapping into this money. For example, if you start receiving your Social Security benefits before your full retirement age, which could be anywhere from 65 to 67 under current laws, your benefits will be reduced permanently and perhaps significantly from what they would be at your full retirement age. If you receive Social Security benefits early, but continue to work and your earnings exceed certain limits, your benefits will be reduced even more until you reach full retirement age. On the other hand, if you delay collecting Social Security until after your full retirement age, you can continue to work and still get your full retirement benefits – or even higher benefits – no matter how much you earn.

The Social Security Administration offers the following guidance: “As a general rule, early retirement will give you about the same total Social Security benefits over your lifetime, but in smaller amounts to take into account the longer period you will receive them. There are advantages and disadvantages to taking your benefit before your full retirement age. The advantage is that you collect benefits for a longer period of time. The disadvantage is your benefit is permanently reduced.” For more information on receiving benefits before full retirement age, visit the SSA’s retirement planner website at socialsecurity.gov/retire2/agereduction.htm. 

Employer pension plans usually have options similar to those of Social Security. Contact your employer’s personnel department for guidance.

No matter when you decide to start receiving your benefits, it could take several weeks to receive your first payment. Also consider having your payments deposited directly into your bank account so you don’t have to worry about a check getting lost or stolen in the mail.

As with your Social Security and pension benefits, you may want to delay tapping into your retirement accounts as long as possible so they can continue to grow to cover unexpected medical costs in the future or to protect the inheritance for your heirs. However, if you need to supplement your income, Individual Retirement Accounts (IRA) and other retirement savings can be a good source of funds.

Before you start withdrawing money from your retirement accounts, most financial planners suggest setting a target annual withdrawal rate. Make it low enough to avoid depleting these funds too quickly. You can fine tune your withdrawal strategy each year, preferably with the guidance of your financial planner or tax advisor. For example, if your personal situation changes, you can adjust how much you should withdraw. Also review your retirement portfolio—your mix among stocks, stock mutual funds, CDs, bonds and so on—to make sure it’s well diversified.

Another caveat: If you have retired, be sure to take out at least the minimum required distribution from your tax-deferred retirement savings plans (except Roth IRAs) every year after age 70 ½ to avoid large IRS tax penalties. If you are still working at 70 ½ or later, you do not need to start taking minimum distributions from your employer’s plan until April 1 of the year following the year you finally retire.

“Remember, you only have to withdraw the money, you don’t have to spend it,” said Heather Gratton, an FDIC Senior Financial Analyst. “If you don’t need the money you can reinvest it somewhere else, such as in a bank savings account.” She added that, because each person’s situation is different, it’s best to discuss your strategy with your tax or other financial advisor.

Having a credit card is a necessity for most senior citizens – from paying for medicine and emergencies to booking a vacation. For seniors living on a fixed income, carrying a large balance from month to month and running up significant interest charges can be a major concern. In the worst cases, the debt becomes unmanageable and a major source of stress for the account holder and the family.

Another problem for seniors is having too many credit cards. The more cards you have, the more opportunities you have to get into debt. Too much debt could make it tougher for you to get the best deal the next time you apply for a loan, insurance, a mortgage, or an apartment. Having a lot of cards also can make it harder to keep track of when your monthly payments are due or to even realize that a thief may have stolen one of your cards.

Home equity loans and lines of credit use the equity in your house as collateral and often are tax deductible (check with your tax advisor). The equity refers to the difference between what you owe on a house and its current market value. A home equity loan is a one-time loan for a lump sum, typically at a fixed interest rate. A home equity line of credit works like a credit card in that you can borrow as much as you want up to a pre-set credit limit. The interest rate for a line of credit usually is variable, meaning it could increase or decrease in the future.

“For elderly people on a fixed income who have paid their mortgage in full or whose mortgage is almost paid in full, home equity loans are tempting to use to pay for expenses, but they can also be dangerous,” warned Janet Kincaid, FDIC Senior Consumer Affairs Officer. “In the worst-case scenario, if you are unable to make the required loan payments, you could lose your home.”

In general, the best uses for home equity-type loans are to purchase goods or services with long-term benefits, such as home improvements that add to the value of your property. The riskiest uses of home equity loans include a vacation or a car because you could end up paying a lot in interest charges for a purchase that’s only of short-term value or has gone down in value. Also beware that some unscrupulous people or companies, including home repair contractors, push high-cost, high-risk home equity loans to elderly people and other consumers.

Reverse mortgages are home equity loans available to homeowners age 62 or older. This type of loan provides money that can be used for any purpose, and the principal and interest payments typically become due when you move, sell your house, or die. A reverse mortgage also differs from other home loans in that you don’t need an income to qualify and you don’t have to make monthly repayments.

While reverse mortgages can be a valuable source of funds, they also have serious potential drawbacks. In particular, you will be reducing your equity, perhaps substantially, after you add in the interest costs.

“Reverse mortgages can help in some situations, such as when you have large medical bills that are not covered, to make major home repairs or to help people on low fixed-incomes make ends meet,” said Cynthia Angell, a Senior Financial Economist at the FDIC. “However, you are reducing your ownership share of the home. That means the inheritance you are leaving to your heirs could be greatly diminished or you could have far less money available for other purposes, such as buying into a retirement community later on. That’s why a reverse mortgage should usually be used as a last resort, not as an integral part of a retirement strategy.” Also, Angell said, the fees can be high, and that could make a reverse mortgage a poor choice to cover relatively small expenses.

People mostly think about life insurance as a source of income when someone dies, but they forget that many insurance policies also can be a source of cash at other times. If you have a life insurance policy with built-up cash value, you can borrow against that money and either repay the loan with interest or reduce the death benefit accordingly. For example, If you have a $100,000 life insurance policy but you owe $20,000 on a loan from that policy, your heirs would receive $80,000 as the insurance payout.

There are other options reserved for people who have been diagnosed with a terminal illness and have run out of other ways to pay their expenses. One example is a life insurance policy that can pay “accelerated death benefits” to an eligible policy holder—generally up to about 50 percent of the face value of the policy—in either a lump-sum payment or monthly payments that are deducted from the policy’s face value. When the policy holder dies, the rest of the death benefit is paid out.

Another possibility is to sell your life insurance policy to obtain a lump-sum of about 40 to 80 percent of the face value in exchange for the right to receive the full insurance payout when you die. This is known in the insurance business as a viatical settlement.

These and other options for tapping life insurance policies can be complicated, including tax and other implications. They are not right for everyone. Consider getting guidance from your state government’s insurance regulator. To find your state’s regulator, go to the National Association of Insurance Commissioners’ website at naic.org/state_web_map.htm.