Tuesday, August 3, 2010, AM | Leave Comment
More than half of the year is gone never to return. We already know we need to stash away some amount of money for retirement while still years away from the more active life [be active in retirement.] But what if you are already living in retirement or close to retirement. What can you do now to take advantage of some of the things that are still available to you for investment or do some maneuvering to your portfolio?
With interest rates currently near historic lows, tax rate changes on your financial horizon, and financial markets volatile, planning for and living through a long and comfortable retirement has become even more challenging, year in and year out.
You already know the basics…
As you enter into retirement, consider gradually moving your portfolio into more conservative investments, keeping a portion invested for long-term growth. The following are the basic exercises you might want to consider for maneuvering your portfolio:
Position your portfolio…
Evaluate your asset allocation over the full course of your retirement which may last more than 20 years. If you are 60 years old and are heavily invested in stocks, consider moving at least 50% of it in more conservative investments such as bonds, treasury notes, etc. Social Security and some pensions and annuities track inflation automatically through annual cost-of-living adjustments or market-related performance.
If any of these sources can cover most of your essential expenses, you will have more flexibility in choosing more growth-oriented investments elsewhere in your portfolio. That will help you try to cover your remaining expenses. If you are early in retirement, you may want to consider “locking in” part of your nest egg by purchasing an annuity.
Prepare for tax time…
Tax rates are scheduled to increase unless Congress acts otherwise. Tax rate cuts introduced in 2001 are going to expire at the end of 2010. Income, capital gains, dividend, and estate tax rates are all set to rise beginning next year.
Federal income tax rates are scheduled to increase for all taxpayers from 10% to 15% for the first $8,375 of income for singles and $16,750 for married couples, with the top bracket hitting 39.6%.
Make the most of Social Security…
One aspect of your financial well-being in retirement is Social Security benefits. You will get your monthly social security payment, large or small. Whether you take Social Security as soon as you are eligible, at age 62, or wait until your benefits accrue as much as possible, by age 70, could mean the difference of more than a hundred thousand dollars over your lifetime. Experts suggest there are pros and cons either way. It’s a delicate balance: The less you have in assets, the slower the growth potential, and the higher your expenses, the more likely it is you will need to take Social Security earlier, even if it means sacrificing any benefits that would accumulate by delaying. Your retirement benefits…
Plan for tax-smart withdrawals…
Once you are ready to start tapping your retirement accounts, you will need to take your tax situation and your portfolio allocation into account. One strategy is to have funds in different types of accounts with different tax consequences upon withdrawal. This sort of tax diversification can help minimize your tax bill in retirement. Consult with a professional tax adviser or attorney.
In a Nutshell
Of course, there is no one-size-fits-all road-map to a successful retirement. Begin by talking with your family about your personal goals for retirement. Consider the above key factors as you fine-tune your plan.