If you ever want to dampen the excitement in a room, mention something about planning for retirement
Everyone loves talking about their dreams – traveling more, buying that second house somewhere warm, living a work-optional life. But as the writer Antoine de Saint-Exupery so eloquently wrote, “A goal without a plan is just a wish.”
So what’s the plan? Let’s start by acknowledging that planning for your retirement is about so much more than number crunching. Far too often, I see folks approaching this coveted period of their lives with worry. I am on a mission to alleviate some of that anxiety. Here are five simple things you can do to help you turn your retirement dreams into a reality:
1. Create an income floor: In retirement years, account balances take a backseat to income. Sources of guaranteed income that are not subject to market fluctuations – such as Social Security, annuities, and pensions – can help create a dependable floor, easing the worry of potential market downturns. If you have a lump sum available to invest, you may explore annuities as a way to receive income, for you and your spouse. Having substantial guaranteed income can also allow you to be more aggressive in your investments, helping to outpace the damaging effects of inflation on your portfolio. Once this income floor is established, you can build on it with supplemental income via withdrawals from brokerage accounts, interest payments, and dividends.
2. Minimize your tax burden: Many people incorrectly assume they’ll be in a lower tax bracket in retirement. Growing retirement accounts can lead to high taxes via IRS imposed Required Minimum Distributions. Interest and dividends in brokerage accounts only make things worse. The good news is, there are many potential ways to lower your taxes via year-round planning including tax-loss harvesting, deductible account contributions, and Roth conversions just to name a few. Don’t go this alone! Make sure you work with an experienced Financial Advisor with an emphasis in tax analysis.
3. Review your investments: Does your investment portfolio match up with you as a risk taker? Low-cost index funds might have served you well for your prime working years, but it’s important to consider professional management as you travel the road to retirement. In the golden years, it may be time to stop chasing returns and start managing risk. Investment management includes services such as risk analysis, portfolio rebalancing, and quarterly investment reviews to keep you on track with your retirement goals.
4. Track your expenses: You should know your recurring expenses like the back of your hand. Well, maybe not that well, but you should have a good understanding of what’s needed to cover your cost-of-living expenses when you leave the job. This is best if done once a year to make sure you factor in inflation and observe how your expenses change to meet your needs over time. When creating this list of expenses, start by looking at your recent bank statements for charges that occur every month. Don’t stop at 1 or 2 months, look through the last 12 months of your bank statements so you don’t miss one-time payments such as insurance premiums, tax prep fees, and vehicle registration expenses.
5. Find your team: There truly is strength in numbers. Having a team of professionals can serve you well by providing unbiased advice and acting as a sounding board in uncertain times. This can add value by reducing investment mistakes (for example, panic selling at the wrong time), avoiding unnecessary taxes, and factoring in risks you might not have thought of, such as potentially living longer than expected.