When it comes to planning for retirement, it's easy to get overwhelmed. Putting together a financial strategy can be complicated at any time of life, what with changing regulations, ups and downs in the market, and disagreements – even among the better-known financial professionals – about the best ways to save and spend money. But the closer you get to actually stopping that regular paycheck, the scarier things can get.
More than half of pre-retirees report feeling anxious about their impending retirement and worry they will run out of money, according to a recent Ameriprise Financial study.
What did they say made them feel more confident? Having a plan in place.
If you're ready to learn more about how you can begin planning, talk to a financial professional about these four financial planning essentials:
1. Put a tangible and comprehensive retirement plan in place.
Consider finding a financial professional who specializes in advance planning -- not just investment planning, but also income planning (making sure you're paying yourself the right way in retirement), tax planning strategies (minimizing your exposure so you're not paying more than you have to), health care planning (finding the right Medicare plan for you and considering your long-term care needs) and legacy planning strategies (assuring your assets will pass efficiently to the people and/or charities of your choice). Then gather up your paperwork and get ready to get comprehensive.
2. Make sure your plan includes transitioning from growth to income investing.
People tend to get stuck in one investing strategy. They spend so many years trying to accumulate money, they may forget to make the shift from the growth phase to the income phase when they retire.
One common mistake is to start taking systematic withdrawals – a set dollar amount – without changing to an income-type portfolio. That's fine if the market is up: You make money, you take money – no harm, no foul. But if you're pulling out money in a down market, you're increasing the odds of running low on – or out of – funds.
Rework your plan to preserve your money as the years pass.
3. Be aware of fees and overpaying to own your investments.
Imagine you're on a cruise and there are icebergs in the water. You know what's above the water because you can see it, but you have no idea what's below the surface. It's the same thing in the financial planning industry: Experts’ fees or the stated expense ratios on mutual funds are above the water and can be pretty easy to spot. But you may not know what's below the surface unless you have a thorough evaluation of your portfolio.
People will think that they're paying just 1% to their financial professionals. But what they may not realize is that their portfolio is getting hit with another 4% or 5% in additional mutual fund costs or other expenses. Making sure your underlying investments are as cost efficient as possible can help put more money in your pocket.
4. Consider a retirement income annuity to create a pension-like income in retirement.
A lot of people are retiring without a pension today. But they do have 401(k), 403(b) or 457 plans, and when they retire, they can use that money to create their own pension. Properly structured annuities with income benefits can make it unlikely that you will run out of money for as long as you live. Look for one that has an inflation hedge, so you don't buy into a set figure today that won't be enough if you live 20 or 30 years in retirement.
After all, a long retirement should be your goal -- not your worst nightmare.
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Important Disclosures
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
Fixed and Variable annuities are suitable for long-term investing, such as retirement investing. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. Guarantees are based on the claims paying ability of the issuing company. Withdrawals made prior to age 59 ½ are subject to a 10% IRS penalty tax and surrender charges may apply. Variable annuities are subject to market risk and may lose value.
This article was prepared by The Kiplinger Washington Editors.
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