6 Things to Consider When Creating Retirement Plans

From Financial Planning magazine:

As 75 million Baby Boomers stand at the edge of retirement, most will have to look beyond government programs to sustain their standard of living.  Here are six things those boomers should be aware of when getting ready to retire.

1. Time Your Retirement Carefully

A retiree withdrawing money from his or her retirement account during a bad investment market might leave them vulnerable in the latter stages of their lifetime. To best ensure sufficient funds for a lifetime, delaying retirement and continuing earning income during down markets is worth thinking about.

2. Fixed-income Investments are Only Part of the Picture

While many investors rely of fixed-income investments for a steady stream of income, it may not always be enough to sustain a retiree’s standard of living. Inflation, today’s low interest rate economy, and the rare occasion of defaults may bite into the purchasing power of regular payments. It is important to have some allocation of stocks.  The younger you are the more important this is.

3. Withdraw Based on your Needs

Withdrawing money from your investments based around your needs will often put you in a better position for the long term. Discuss with a CFP professional to match your withdrawal rate to your unique circumstance of life.  Also keep in mind that you can spend capital appreciation as easily as dividends and interest.  That is why we focus on “total return.”

4. Don’t Fear Spending Retirement Portfolio Funds

Retirement portfolios are meant to be spent during one’s lifetime, and doing so under the guidance of a CFP professional can enable a more comfortable and secure retirement.  However, we never know how long we are going to live, so planning to spend your last dollar the day you die is a risky proposition.

5. Understand Your Tax Obligations

Making use of taxable and tax-deferred accounts can help control amount of tax owed per year, and ultimately aid in sustaining a retirement portfolio.

6. Spending Matters More Than Investments

Contrary to popular belief that getting the investments right in a portfolio will lead to a stable retirement, withdrawals from an account actually matter more. Focusing on expense management is an effective way to ensure sustainability of resources.  We have much more control over our spending that  we do over stock market returns and interest rates.  Focus more on the things we can control and less on the ones we can’t.

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