Update Your Financial Plan Annually For Retirement – Part 4

Saturday, November 19, 2011, AM | 1 Comment

Ah! it was just just 40 years ago when I migrated to the U.S. Feels like a year ago. Feels like a dream. I never thought I would get so close to retirement. The good old days are behind me. The dreadful days are ahead. Living only on social security is not enough. There were times when I had no financial worries. Never thought I would retire one day or being so close to it.

Never was able to save for the days that I would spend in retirement. I am paying for it now, not with money and assets but empty pockets and almost empty bank account.

When you are young, it seldom comes to mind to save for retirement so that you can live a good and decent financial life. At the very least, you don’t want to be dependent on anyone.

Unlike me, many individuals are smart enough to save for retirement. If you are gainfully employed, make sure you participate in your company’s 401(k) program at the very least. If your employer offers matching contribution, grab it. That’s free money.

Don’t leave it at that. Review and update your retirement plan every year at a minimum. Priorities in life change. Your strategies should change as your perspective changes in terms of your lifestyle and financial needs.

Your retirement plan ought to establish some sort of plan so you have guaranteed lifetime income sufficient to cover your essential expenses. For this purpose, you should periodically reevaluate what you anticipate your retirement expenses will be.

Many factors could change the expense side of the equation. On the lifestyle, they might range from health and marital status to your evolving interests and tastes.

On the income side, use your annual review to check your progress toward establishing your retirement income plan and update it as needed. If you are nearing retirement like me, your adviser can help you with:

  • Determining how your current wealth could be structured to provide the income level you need.

  • Identifying shortfalls and recommend strategies to make changes in your retirement plan.

  • Checking your tax assumptions and determine if they need to be adjusted.

  • It so happens that many folks expect income tax rate to be lower in retirement than when they are working full time. If you are one of them, you might want to consider maximizing your tax-deferred savings now.

  • On the other hand, if you expect income tax rates to increase for your tax bracket by the time you are ready to retire, you might consider paying the taxes now by converting to a Roth IRA for the tax-free income in retirement.

  • If you are already retired, you may be ready to withdraw. Use your annual review to revisit your investment withdrawal strategy. Two things you should keep in mind:

    1. Generally, it makes sense to use money from your taxable accounts first. The reason is long-term capital gains are taxed at significantly lower rates compared to the ordinary income tax rates you pay when you withdraw from traditional tax-deferred retirement accounts.

    2. At the same time, leaving your tax-advantaged assets in place allows them to potentially grow tax deferred or tax free.

In a Nutshell
Participate in any kind of retirement plan that you see fit in your financial life. The more common plans are IRA, 401(k) and just plain saving and investing. Next we will discuss Update Your Financial Plan Annually For Insurance – Part 5, the last one in this series.

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  1. One Response to “Update Your Financial Plan Annually For Retirement – Part 4”

  2. By Russell on Apr 22, 2013, 11:22 am | Reply

    Good outline for anyone who is maintaining a retirement account now. And a simple plan to follow for younger people like myself who should be looking into a future retirement savings!

    Thanks for the info!

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