After years of saving and planning for retirement, you may be excited to realize you can finally afford to stop working. Careful planning in the years & months leading up to retirement can help you ensure smooth transition from employee/business owner to retiree. If you have decided to retire, you may have already addressed a host of financial items such as:
- You have inventoried all your investments, retirement plan, Social Security & pension benefits to determine that you can actually afford to quit generating income.
- You have decided on an initial annual withdrawal amount that you feel you can take from your investments every year without a substantial risk of depleting your accounts before you die.
- You have determined how you will cover the cost of your health insurance needs.
The period of transitioning from the work force/business ownership to retirement will itself present a whole series of financial issues to address. Following are some suggestions to think about as you work to make the transition run as smoothly as possible.
ELIMINATE YOUR CREDIT CARD DEBT
A high balance on a credit card can translate to a monthly payment of several hundred dollars. Paying off credit card debt may require you to withdraw more from your investment account but you will never regret eliminating the burden of a high credit card balance – even if doing so requires that you stay in the work force a few extra months.
GET ADVICE ON HOW TO TAKE PAYOUTS FROM PENSION PLAN
Today, defined contribution plans such as 401(k) plans have become more common than traditional pensions which pay you a fixed amount every month. If you work for a company that still offers an old-style pension plan, you may have a choice about how your monthly benefit will be calculated.
WEIGH YOUR OPTIONS FOR HANDLING YOUR MORTGAGE
If you are about to receive a large lump-sum distribution from your retirement plan, you may be tempted to use a portion of that money to pay off your mortgage. Doing so could reduce your monthly bills substantially. After reviewing your investments and needed cash flow, I can help you determine the best strategy for paying off your mortgage.
DEVELOP ASSET ALLOCATION STRATEGY FOR INVESTMENTS
A generation ago, retirees would shift most or all of their assets into conservative investments such as bonds because these investments could provide the income and principal they needed. With earlier retirement ages and longer life spans, today’s retirees often need the potential of principal growth that stocks have historically provided. As you prepare to transition into retirement I can help you follow a disciplined diversification strategy. Keep in mind that no investment strategy, including asset allocation, can guarantee a profit or protect against loss. Also, all investments carry a certain amount of risk including the possible loss of the principal amount invested.
SELECT WHICH ACCOUNT YOU WILL WITHDRAW FROM FIRST
As a general rule, if you are under age 70 1/2, it may make the most sense to withdraw money from your taxable accounts first. Taking money out of a stock fund that you have invested in on your own, for example, may allow you to keep deferring taxes on the annual earnings of any IRAs you own.
BALANCE INCOME NEEDS WITH ESTATE PLANNING GOALS
Any dreams you have of leaving a financial legacy for your children also will affect the retirement planning decisions you make. Money left in an IRA, for example, could bring greater tax consequences for your children than money in taxable accounts would.
ENJOY THE RIDE
The job of planning for retirement never ends. As we work together, I can monitor your investments to make sure your strategy is performing as expected and make any adjustment that may be needed to help you stay on track.
Questions about your personal retirement strategy? Contact me to set up a complementary consultation to review your options.
(Listed content was originally created by MFS Fund Distributors, Inc. Boston, MA)