Retirement and You: Answers to Your Top Financial Concerns

~ By Herb White, MBA, CFP ~

The word retirement likely brings up all sorts of questions related to your finances. For example, what is an RMD? Simply put, if you have taxable accounts, such as a traditional IRA, a 401(k), 403(b), or 457 plan, you will have to start taking annual Required Minimum Distributions (RMDs) beginning the year you turn age 70-1/2. This is required whether you are still working or are retired.

Moreover, as retirement nears, you likely will have decisions to make on strategies for other withdrawals from your portfolio to live on in retirement. But how much to withdraw annually? Even the decision on when to retire can be affected by your finances.

Planning becomes the driving force in your upcoming retirement. Having a workable plan will help you achieve that security you want. Even if earlier you prepared a plan for retirement, formal or informal, it’s good to revisit those plans now.

Let’s start with those RMDs. You may be asking, how much do I need to withdraw, and when to satisfy this requirement? The minimum amount of your annual RMD is based on your life expectancy, and if you have a beneficiary, sometimes it’s based on that person’s life expectancy as well.

Along with considerations about your RMD withdrawal, now is also the time, if you haven’t done so already, to consider how much to withdraw annually from your retirement account to live on during your later years. This amount will be based on what you figure you will need annually. A good idea is to meet with a financial advisor to guide you in this important planning step. You have a number of options to help you retire securely and managing those withdrawals is just one of those steps.

Planning starts with asking yourself questions: What amount will I need to live on in retirement? A good estimate is between 60% and 80% of what you are currently making. Of course, the amount you will need is not set in stone, and what may seem to be adequate today may not be so in the future. Keep in mind that changes in inflation and potential Social Security and economic issues can significantly affect your retirement money.

Also in your planning, with those RMDs, you can always take out more than the required minimum amount. But doing so won’t affect distributions in future years. Say, for example, your required withdrawal this year is $500 but you take out $1,000. You can’t carry over the remainder to count against the next required distribution. However, because you’ve reduced your IRA balance, your subsequent minimum distributions will likely be lowered.

Which accounts should you tap into first when planning your portfolio withdrawals? Tax issues may enter into the picture here. It likely is best to hold onto your tax-deferred accounts to maintain the tax benefits. If your taxable accounts won’t cover your needs, however, ask your financial advisor to guide you. Your best move at this point may be to liquidate certain assets, especially taxable accounts that are not doing well. You may also want to look at and adjust your overall portfolio in light of asset classes that have become over-weighted. Doing this will help get you back to your target asset allocation.

Other retirement strategies include bond laddering, which relies on maturity dates that are evenly staggered so a constant proportion of the bonds can be redeemed at par value each year, potentially providing a steady stream of income.

Most importantly, a well-balanced portfolio, with stocks, bonds and cash investments, will help by providing some growth potential even as it provides a buffer against downturns.

Herb White

Herb White

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Provided by courtesy of Herb White, MBA, CFP©, a CERTIFIED FINANCIAL PLANNERª with Life Certain Wealth Strategies, 8400 E Prentice Ave, #715 Greenwood Village, Colorado,, (303) 793-3999. Securities and investment advisory services offered through Woodbury Financial Services, Inc. Member FINRA, SIPC and Registered Investment Advisor. Life Certain Wealth Strategies and Woodbury Financial Services are not affiliated entities.