4. Creating a plan to pay the bills
With a snapshot of future income needs, it’s important to know how you’ll cover those expenses. Social Security plays a role in the finances of most retired households. Know what age at which you’ll claim your benefit and what you can expect for benefit payouts. Remember, deferring Social Security increases your benefit by 7-8% per year.
When considering what sources, you’ll be drawing income from, you may want to consider withdrawal rates and tax implications. When they participate in an employer-sponsored retirement plan, many people opt to take a lump sum withdrawal (if an option). However, managing income streams from a retirement portfolio can be quite complicated – not to mention the possible tax liability. With contractual guarantees for income lasting as long as you could live, annuities may be an option to consider for steady, scheduled income payments.
5. Evaluating the risk profile of your plan
In retirement, it’s important to be mindful of risk. For those of us with a low tolerance for investment losses, a falling market can provoke us to sell off stocks. We may think we’re staving off further losses, but in reality, it’s foregoing recovery. And for seniors and baby boomers with a bigger appetite for market risk, having too much of their assets in volatile investments can lead to “sequence of returns” risk – or having to deal with the effects of investment losses early in retirement. A diversified portfolio with a suitable balance of risk and return potential, based on individual needs, age, and circumstances, can help.
Photo Credit Kelly Sikkema