To do all the things you’ve dreamed of in retirement and not stress that your money will run out, you need to make the most of what you have with a smart, integrated investment, income, and tax plan.
People planning to retire in the near future, those already retired and some transitioning to the post-work life have more significant concerns about their investments than ever before.
Geopolitical events, the surge in inflation, and the expected increases in interest rates are causing people to worry about where their money is going and whether it will grow sufficiently to meet their retirement needs. But we shouldn’t let outside forces they can’t control overwhelm their ability to prioritize, adjust and invest wisely.
Here are five tips that can add more certainty to your investment strategy when you are nearing or in retirement
1. Don’t give in to knee-jerk reactions
Turn off the mainstream media financial news programs and random Google searches. They are meant to stoke fear because fear gets viewers and readers. If you listen long enough or read lots of negative financial news, there’s a greater chance that you’ll end up making an ill-advised, poorly timed decision about your investments.
2. Differentiate your money between short-term and long-term
People tend to treat all of their money the same. But that approach leads people to think that it’s all one pot of money that works just the same and creates an incomplete picture. Because in reality you will use some money in the short term and some in the long term. For starters, simply separating the money into those two-time frames helps craft a smarter investment and income-distribution strategy.
3. Shore up your income streams
The transition from work to retirement is understandably uncomfortable. Before retirement, you received a steady paycheck from work. Shoring up retirement income streams may give you the comfort of knowing that you have a certain amount coming in every month and every quarter during retirement. That security can change your whole emotional outlook in retirement. It can be the key to having more confidence to do the things you want to do.
4. Focus on being tax-efficient
Which asset “bucket” you draw money from and the potential tax implications of when you take it to meet retirement income needs should be factored into your overall retirement plan. Being tax-efficient could make a big difference in your usable dollars. In fact, how much money you’re able to use after taxes could matter more in retirement than how much money you have or how much it grows.
To be tax-efficient, you should have your money thoughtfully divided into three different buckets:
- The tax-free bucket (including Roth accounts and life insurance), which doesn’t get taxed at all when withdrawn.
- The tax-deferred bucket (IRAs and 401(k) accounts, etc.), which get taxed at your ordinary income tax rates.
- Taxable buckets (brokerage accounts), where the gains get taxed at capital gains tax rates.
You should consider investing differently in each of those buckets based on the tax implications of the accounts and strategize when to pull money from each of them so you can maximize for tax-efficient withdrawals.
5. Let integrated planning help you make sound decisions
A solid investment strategy is about more than what is in your portfolio and its percentage return; it must be integrated into your overall income, investing, and tax retirement plan.
An integrated plan looks at five essential dimensions of retirement design: income, investing, taxes, protection, and legacy. It’s one thing to just talk about planning and a completely another thing to have integrated planning that weaves all the pieces together.
When the paycheck from work is gone, your portfolio needs to take over the work for you in retirement. It’s worth it for us to review your investments at regular intervals to make sure you are taking advantage of the income, investing and tax opportunities that might be available to you.
Source: Kiplinger.com. Content in this material is for general information only and is not intended to be a substitute for individualized financial advice. Please consult your legal advisor regarding your specific situation.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.
