Fine tuning your retirement plan
Suppose that you’re 20 years away from retirement. Your goals and your
strategies to meet them have, perhaps, only begun to take shape. With a career
to manage, children to raise and a myriad of other obligations, planning for the
leisure phase of your lifetime probably seems premature.
Now,
flash forward ten years. Your vision of retirement is likely to be solidifying,
and your expectations and needs may be coming into sharper focus. And, with each
passing year, you will begin moving from the “big picture” and start filling in
the details.
Integrating your investments
Most likely you have been investing for retirement for many years now in a
company plan, Keogh or traditional or Roth IRA. Have you thought of them as a
single unit, along with your non-retirement investments?
Perhaps you are similar to many other investors who have, over the years,
accumulated a wide variety of unrelated and, possibly, incompatible holdings. At
the time, and in context, each of the investment decisions may have made sense.
But set side by side, do all of your investment holdings come together in a
cohesive portfolio?
Reviewing and reallocating
Be sure to review the goals and assumptions that you may have made previously
about your financial needs in retirement. Are the estimates of the income that
you expect to receive and the expenses that you’re likely to face still valid?
If not, you’ll want to readjust your capital needs accordingly. And, if that’s
the case, your investment strategy may need more than just fine-tuning.
If your asset allocation strategy hasn’t changed recently (in your plan account
or personal portfolio), the question to ask, then, is: Did you make a conscious
decision to stay the course, or simply fail to act? Certainly, as you move
closer to retirement, you will want to address what changes in your overall
investment strategy may be in order. For instance, does a greater need for
income suggest that you add (or add more) dividend-paying stocks to your
portfolio? Or, if you are more concerned about risk once you are no longer
receiving a regular paycheck, should bonds play a more important role in your
portfolio?
Finalizing your retirement plan payout strategy
A full explanation of how to handle your retirement plan payout would take up
much more space than we have here. But a few key points are essential to
mention: Review your choices carefully. You may be allowed to keep your funds in
the company plan for a time. You may take the cash in hand, pay taxes and invest
it. Or, you may roll over your distribution to an IRA (restrictions,
limitations, and fees may apply).
The latter choice is a popular one. Your money can continue to grow tax deferred
until you reach age 70 ½. But make sure to arrange for a direct rollover from
the company plan to an IRA. If you don’t, and you receive the money in hand,
your employer is required to withhold 20% of your payout for taxes.
Managing your real estate
With some luck (and advance planning), the mortgage on your home will be very
low or paid off when you retire. Consider what steps you might want to take to
free up the equity in your home.
In his Wall Street Journal column “Getting Going,” Jonathan Clements offered
some suggestions about how to tap the equity in your home. If the children are
grown, and the nest is empty, perhaps you don’t need all your current living
space. “Trading down” to a smaller home not only will provide you with more cash
to invest, but also allow you to reduce some of your fixed expenses—property
taxes, home maintenance, insurance, utilities, etc.
Reevaluating your insurance needs
As you near your retirement, a comprehensive review of your insurance is in
order, especially your medical care coverage. There is a sea of questions: What
benefits, if any, can you expect from your employer? What will Medicare cover or
not cover? What do Medigap policies offer you, and which one is the best in your
situation? If you are a veteran, are there medical or prescription benefits that
might be available to you?
Is your life insurance paid up? You may want to explore reallocating that
expense to premiums on long-term care insurance (LTCI) coverage. According to
the EBRI’s 13th annual Retirement Confidence Survey, eight out of ten people
have given little or no thought to the need for long-term care insurance. But
most people should at least do the research. LTCI can offer both nursing and
home care, and provide a wide range of coverage options. As you do your
retirement planning, take a look at what’s available in LTCI coverage. Recognize
that the longer you wait to make a decision, the higher the premiums that you’ll
pay.
There’s always much to do
Of course, there may be many more steps that you need to take as you enter
retirement (when to start receiving Social Security benefits springs to mind).
We’ve touched upon only a few of them here. We would be glad to discuss your
retirement needs and assist you in making the right choices. Taking the time
now, before any doors of opportunity close, will help ensure a happy,
financially secure retirement.
The opinions voiced in this material are for general information only and are
not intended to provide specific advice or recommendations for any individual.
To determine which investment(s) may be appropriate for you, consult your
financial advisor prior to investing.
Securities and Insurance Products are offered by LPL Financial, member FINRA/SIPC,
and its affiliates. Not registered broker dealer(s); Not affiliated with LPL
Financial.
