If you’re in the short sprint to retirement, you probably have a lot of questions, like: Where did the time go? How am I going to do the 100 things I told myself to get done before today? Where do I go from here?
These are some of the main areas that I find most retirees want help with and tips that can, hopefully, decrease stress during this exciting time.
Getty ImagesBefore you spiral into a stress frenzy, let me reassure you: You can’t get all 100 things done right now, and that’s OK. You can take actionable steps right now to help cross off some of the things on your list. Let’s get started and see how many we can finish. Then you’ll have a better feel for the total time your list will require.
Below are some of the main areas that I find most retirees want help with and tips that can, hopefully, decrease stress during this exciting time.
INCOME
In order to know how much income you’ll need in retirement, let’s do a little math. Add up the total of your assets that can be used for retirement income, including your pension and your spouse’s pension, if you have them, and enter these as annual amounts. If you have any annuities, add in those payments as well, including the amount of the income and the frequency (monthly, etc.). If they are not yet providing income, enter the cash value. Add your 401(k)s, separate IRAs, brokerage accounts, bank accounts of any kind (CDs, savings, checking, Christmas Club, etc.), and any other types of income generators (real estate, trusts, etc.).
You don’t have to have the exact amount for all accounts, especially if you don’t have current statements, but get close. The important part here is to get everything on the list. This next step is the easy part. Take the sum of any dividend receiving assets and multiply it by 4%. Why 4%? Many investors are receiving dividends between 4% and 7%.[1]
EXPENSES
Now that we’ve figured out the amount of income coming in during your retirement, let’s take a look at expenses. Do you still have a mortgage? Enter the payment, balance, and number of payments remaining (from your most recent statement). Credit cards? Lump the balances together. Now, look at what’s left (car payments, personal loans, subscriptions, phone payments, payments going to somebody who doesn’t appear in your check register, etc.) and make sure nothing is missing.
When you’re done here, you’ll have a cash flow projection that includes income and expenses. Note that this will show a very limited long-term cash flow until you adjust for when each debt is paid off. To further refine the projection, decide if you want to take the payments from paid-off debts and apply them to the debts you still owe.
ASSETS
All assets are generally accumulated to provide income to someone. Most of us accumulate assets (wealth) for our own and our spouse’s retirement income. How much income a sum of money will generate depends on how much the sum is, what rate of return we can realize, how much will be owed in taxes, and how many beneficiaries will draw from the pool. There is a trade-off between risk and return. You may have heard that, in order to create more income, the investor must take more risk. But, risk is a very subjective term; what is risky to you might not seem risky to the next person.
To obtain a higher return from the variety of assets available to us, we’re encouraged to diversify. Someone might say of their assets, “I’m pretty well diversified. I have large-cap, mid-cap, and small-cap stock holdings. I also own blue chip stocks and emerging markets, with a little bit of foreign shares invested in several global regions.”
Are they diversified? In one way they are, but it also sounds like their assets are almost 100% in stocks. When the market corrects, those assets can be affected in unison. If the market experiences a significant drop, their retirement assets will also experience the drop. This is not diversified as money managers intended. The diversification our office typically recommends is among asset classes, or investments that do not move in the same direction at the same time.
This is probably a good time to meet with your financial advisor or, if you don’t have one already, meet with and interview several advisors. Multiple surveys, over long periods, have shown that most consumers are happiest if they have a sound diversification strategy using multiple asset classes and an advisor they can call during scary times, even if it’s just to talk.
As a retiree, what are your highest priorities for your portfolio? My priorities and yours aren’t connected, and yours may be different. Here is my personal list. If I weren’t a financial professional, I would share this list with my own advisor and start there:
1. Income
2. Safety
3. Growth
4. Liquidity
How do you find higher growth potential or a less risky source of income? Search for it. Google it. Ask your advisor. You will probably find real estate investment trusts (REITs) on the list. Hundreds of them! If they are traded, they are liquid. Annuities may also fit into this list. They can guarantee income for a stated period, to include life if you choose that, and they can even include joint incomes with a benefit to the survivor. “Junk bonds” are considered riskier but, in return, might offer a higher yield. Look for a higher return with relative safety and liquidity.
You probably won’t find all of that in one place, so work with your financial advisor to mix it up. You don’t need to know the names of the products that do these things, but you will need to ask questions. Don’t give up! If you don’t get satisfactory answers from one advisor, move on. You can always go back.
LIABILITIES
Every type of asset has its own natural liabilities, so keep those in mind when diversifying. Taxes are the enemy of many retirement accounts. You deducted the contributions, but, when you withdraw the money, the tax man wants his share. You’ll see that the IRS allowed you to deduct the “seed,” but now they will tax the “crop.” If you owned rental property during the accumulation part of your planning, notes and loans may pop up when you decide to sell those rentals. Try to keep the pros and cons in mind when diversifying your retirement assets.
This content was brought to you by Impact PartnersVoice. MBL Insurance Agency LLC and their affiliates do not offer legal or tax advice; for information on your particular circumstances, please contact your legal or tax professional. Annuity guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. Insurance and annuities offered through licensed professionals of MBL Insurance Agency LLC, TX Insurance License #2122119. DT5424-1019
