In retirement, managing assets is a full-time job
The United States is experiencing a significant change in demographics as baby boomers reach retirement age. According to the Census Bureau, 7,918 people will turn 60 each day in 2006. That amounts to about 330 every hour. Increasingly, individuals are forced to rely more and more on their own personal savings to maintain their lifestyle through retirement. The traditional “Three-Legged Stool” (Social Security, company pensions, and personal savings and investments) is down to one or two legs in many cases. Even though you may have given a lot of thought to planning for retirement, planning in retirement is more important than ever before. The decisions you make after you retire can mean the difference between living a stressful retirement or enjoying the peace of mind that comes with making informed decisions.
As you enter into retirement, your job now is to manage the assets youÂ’ve accumulated and maximize your financial security for the duration of your retirement years. The following are a few simple strategies to consider as you execute your retirement plan.
DonÂ’t underestimate your life expectancy. If you retire in your sixties, you could realistically live for another 20 to 30 years. According to the American Academy of Actuaries, the average 65-year-old man will live to age 84; the average woman, nearly 87. And remember, those are just the averages. The odds that one or both of a 65-year-old couple will live to age 90 is 58 percent. Therefore, the challenge is to make your assets last. Be sure to set realistic expense plans and income strategies to maintain your lifestyle throughout the retirement years.
Carefully consider your retirement distribution options. Social Security, pension plans, IRAs, 401(k)Â’s, profit sharing plans Â… it is likely your retirement income will be drawn from a variety of sources. Which assets should you access first? The decision about what to do with your retirement plan after you retire can have significant lasting implications. There are a number of factors to consider. Your earning potential, tax savings and personal circumstances can and should influence your choices. And donÂ’t forget about minimum distribution requirements. If you are retired, you are generally required to take mandatory withdrawals from your qualified plans by April 1 of the year after you turn age 70 and six months.
Stay focused on asset allocation. Retirement is not the time to forget about growing your investments. The CDs that may have been a staple of your parentsÂ’ or grandparentsÂ’ retirement portfolio wonÂ’t cut it for todayÂ’s 20- to 30-year retirements. You need to generate income throughout retirement, and investing in equities has historically proven to be the best way to achieve the growth youÂ’ll need for the new long-haul retirements.
DonÂ’t underestimate. When considering your post-retirement income needs, donÂ’t let yourself get blindsided by the inevitable effects of inflation. The truth is, with rapidly rising health-care costs and increased life expectancies, you may need to budget for many years of living expenses, particularly health-care costs. Be aware of what services and procedures are covered through Medicare. Even routine health-care expenses can quickly eat away at your retirement assets and income, not to mention the staggering effects of long-term care expenses.
Maintain adequate insurance coverage. Just as your income and expenses may change in retirement, your insurance needs may change as well. Consider whether youÂ’ll need to replace any employer-sponsored insurance benefits such as life, health and dental insurance. Be sure to review your homeowners and auto insurance policies to ensure they are in sync with your retirement lifestyle.
Update all paperwork. You may have created a will, beneficiary designations, trust and powers of attorney in your earlier years; however, take the time to review and revise your legal documents to ensure your wishes are relevant and appropriate for your retirement years.
These strategies offer only a summary of issues to consider during your retirement. Each situation is unique and requires its own analysis and planning. A professional financial planner can work with you to help develop a plan that maximizes your financial assets throughout retirement.
This information is provided for informational purposes only. The information is intended to be generic in nature and should not be applied or relied upon in any particular situation without the advice of your tax, legal and/or your financial advisor. Neither Ameriprise Financial nor its advisors or representatives provide tax or legal advice. The views expressed may not be suitable for every situation.
Derrick Kinney is a financial expert with Ameriprise Financial and specializes in retirement and investment planning. He can be seen on NBC5 television every Saturday morning at 9:20 a.m., answering viewer financial questions. Derrick can be reached at 817-419-6001 or at derrick.t.kinney@ampf.com.
