You did it. You hit one of the biggest milestones in your life: retirement. You might think there is nothing left to plan, but you have just entered a new phase of the financial planning process. A very important process, if done properly, that will allow you to enjoy the next 20 plus years in retirement.
There are many questions and concerns that come up during this planning process. A few I see the most are:
1. What’s the best way to avoid the risk of outliving your assets? How much should I be taking out of my nest egg to sustain the life I’m living?
2. What’s the best way take income from your assets to minimize taxes? How should we take inflation into consideration for our plan?
3. When is it best to take Social Security for myself and my spouse?
1. Outliving your assets: Set Up a Long-Term Budget
Retirement can be a long endeavor. If you retire at 65, you could easily spend 30 years enjoying life. Making the transition from getting a steady income to living off a more limited fixed income can become tricky if you do not plan for the change. Start with a simple budget of your monthly expense to get an idea how much income you'll need to replace. From there you can determine how much you will need to take from your nest egg to sustain the life you want to live. Ideally you want less than a 5% withdrawal rate from your nest egg. Depending on how much you have saved for retirement this will allow you to live off the interest your nest egg will generate and preserve the principal. Preserving the principal can be a huge benefit down the road, just because you stopped working doesn't mean inflation stopped.
2. How should I minimize taxes: Consolidate and Simplify Accounts
Nowadays, it is common for someone to have multiple jobs over their lifetime with old retirement accounts spread out with their former employers. Use this opportunity to take out all those old files you have and make sure you have a list of your old 401(k) accounts and IRA’s. Too many people enter retirement with old 401ks and IRAs. Once you have consolidated your accounts, you will be able to analyze exactly how you want to draw down your assets for income. This is a great time to work with a financial planner to go over what you have set up and find the best way to receive income from your assets.
3. Check with Social Security
One of the most important retirement decisions you will make is when to start taking your social security benefits. There is a number of strategic ways to maximize your benefits depending on your situation. Meet regularly with your financial professional. You may have jumped an enormous hurdle, but you still have a long future ahead of you.
There are many questions and concerns when you enter retirement. But when you have the proper plan in place, you can have confidence when going into retirement. However, do not take this process lightly, there is a lot of factors to be considered once you retire. If you have not reviewed your plan in a while or need help building a customized plan, there is never a better time than now to reach out to a financial planner for assistance.
By Nicholas Licouris
Investment Advisor Representative
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which course of action may be appropriate for you, consult your financial advisor. No strategy assures success or protects against loss.
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