You know that if you want to make it
through retirement, you need to plan now. And that planning should
involve an investment plan. Your goals and individual needs will be a
big part of the kind of investment portfolio you have to get you through
your retirement years. Here are some steps to take in order to create
your retirement investment plan:
Consider getting help: After assessing
your financial situation, you need to determine whether or not you need
help making a plan. There are plenty of free online calculators and
tools that can help you, but you might feel more comfortable getting
professional help. You need to decide, at that point, whether you just
need a one-time session to work out a plan, or whether you need long
term wealth management help.
Look at your possible withdrawal rate:
Think about your expenses now, and estimate your expenses in retirement.
Think about your goals, and what you want to accomplish.
Figure out how much money you will need
each month in order to meet your expenses — this includes insurance
premiums, utilities, travel expenses and other expenditures. Most
financial experts recommend that you withdraw 4% of your assets in year
one of retirement, and then adjust for inflation going forward. But your
needs may be different, so consider this carefully.
Consider possible income streams: When
building a retirement portfolio, you will need to consider the income
streams that will cover your expenses. You can cushion your withdrawal
rate by cultivating income streams such as businesses and web sites. You
can consider Social Security and any pension or inheritance you might
have.
Look at your portfolio and determine
whether you will need to shift some of your assets into income
investments like dividend paying stocks and bonds. Some even purchase an
immediate annuity to help provide an income stream, but you should
carefully check to make sure such products are best for your situation. A
part-time job or hobby can also provide some of the income you need.
Look at your liquidity: Make sure you
have an adequate cash cushion in relatively liquid cash accounts such as
CDs, high yield savings accounts, money market accounts and some bond
funds (if appropriate for your situation). There might be some instances
in which you need immediate access to cash.
Remember taxes: Finally, consider the
tax implications of your retirement accounts and investments. Some
retirement investment accounts, such as Roth accounts, grow tax-free,
meaning you won’t be taxed on the withdrawals. Other, traditional,
retirement accounts grow tax-deferred.
This means your withdrawals, when you
make them, are taxed as regular income. You will also have to consider
capital gains taxes on other investment accounts. Consider withdrawing
from tax-deferred accounts first, or rolling those accounts into Roth
accounts and getting the taxes out of the way before taxes rise.
As you begin investing in your future,
make sure you put money into tax-advantaged accounts first. You’ll get
more bang for your buck this way. Also, as the year progresses, take
stock of your retirement portfolio, and decide whether your asset
allocation needs to be tweaked according to changing circumstances in
income and risk tolerance. Many people shift their assets around as
retirement approaches, preparing to live off their investments, rather
than focusing on growing them.
Once in retirement, it is still
important to take stock of where you are at, and make sure that you are
spending your money in such a way as to ensure that you don’t outlive
your funds.
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