“It takes at least three years to go through all the adjustments and thoughtful discussions to have. There are quite a few variables, so it’s important to build solutions rather than trying to design everything in a year,” said San Diego. Leonard Wright, certified financial planner based.
Here are five key questions to consider when starting to tailor a plan.
1. Determine what you are going to spend
Most people want to be able to have enough money in retirement to maintain their quality of life. Well, how much is this quality costing you?
“The most important thing a person can do to help themselves plan for retirement is to figure out what they are spending now,” said Ann Minnium, a certified financial planner based in Margate City, New Jersey.
Create a list of your current expenses. Then modify it to better reflect what you are likely to spend 10 years from now.
So, for example, write off running expenses that won’t be a problem when you retire, like tuition that you won’t need to pay anymore, or a mortgage that might be paid off.
Then add in any new expenses you’re likely to incur, such as the cost of unsubsidized health insurance if you retire before you qualify for Medicare. Also consider the anticipated costs over time if your condition deteriorates.
Also consider what vision you have for how you want to spend your time in retirement, Wright suggested, like travel or leisure. Then calculate the costs associated with these activities.
Also, if you are someone who buys a new car every few years, put it on the list as well.
In terms of living expenses, do you plan to move to a cheaper neighborhood when you retire?
“Reconnaissance first,” Minnium suggested, like visiting places on your wishlist to get a better idea of what things cost there.
2. Set up a more conservative portfolio
Unless you have a large pension, your savings accumulated in a 401 (k) or 403 (b), IRAs, and brokerage accounts will likely be your biggest source of financial security, followed by Social Security.
Your nest egg will be near its peak as you approach retirement.
That is why you want to do everything you can to protect it against the big drops in the market, which are inevitable. But the riskiest time for such a downturn is in the five years leading up to retirement and the next five years, as you’ll start to dip into a portfolio that hasn’t had a chance to turn around, Minnium noted.
So, as retirement approaches, she suggests withdrawing money from stocks and keeping more of it in more stable investments, like bonds or cash. “Invest more cautiously during this period, with a smaller allocation to equities. You can start adding more actions again [once you’re several years into retirement.] It is not a permanent decision, ”she said.
3. Determine the amount of savings you will need to withdraw
The biggest psychological adjustment for everyone when they first retire is to no longer have a regular salary.
“It’s like taking off a security blanket,” Wright said.
Another big adjustment is to move from an accumulation mindset – after all, you’ve focused for decades on building your savings – to a preservation mindset so you don’t outlive your savings. silver.
To determine how much you will need to withdraw from your savings to cover your expenses, first determine the sources of fixed income you will receive from pensions and Social Security benefits.
Then subtract this fixed income amount from your assumed monthly expenses to determine how much you will need to withdraw from your savings to close the gap.
4. Develop a strategy to reduce your nest egg
The discussion of how much to withdraw from savings so as not to outlive your money often focuses on withdrawal rates – is 4% per annum doable? What happens if I withdraw 5%?
But just as important is where you get your money from and when.
This is because you will likely have taxable sources like a 401 (k) and non-taxable sources like Roth IRAs, as well as market dependent accounts (eg, stocks and mutual funds) and non-market income (eg, pensions, annuities, and cash).
You will also need to take the minimum distributions required from your traditional IRAs from age 72 onwards, while Roth IRAs do not have such a requirement.
Your goals should be to minimize your tax levy and protect yourself against any market downturn.
“The key is not to have to sell stocks in a bear market,” Minnium said.
So, for example, if your non-market income sources are not enough to close the gap that your equity withdrawals have provided, you may decide to use a home equity line of credit to get by, or to use the value of a life insurance policy, she suggested.
5. Get outside help to create a plan
Making a financial plan for retirement in a decade can get tricky.
So even if you don’t want to pay someone else to manage your nest egg on an ongoing basis and charge you a percentage of your assets, you can invest a few hours to build a roadmap with a financial planner who specializes in retirement matters.