GOLDEN VALLEY, Minn.- You wouldn't dream of running a marathon without undergoing months of training. When it comes to retirement, many new retirees haven't done any training or planning, leaving them unprepared. Dan Ament, our KARE11 Financial Advisor with Morgan Stanley joins us highlight some important topics to consider from Kiplinger Personal Finance.
Make a Retirement Budget
Understanding what your likely retirement expenses will be is an important step to take BEFORE your retirement party. Examine your fixed and discretionary expenses over the prior year and develop a budget to estimate your projected future needs.
Maximize Social Security
You can sign up for benefits as early as age 62 (full retirement age is 66 for people born between 1943 and 1954). But by claiming early, your benefits will be reduced by about 25% to 30% of the amount you’d get at full retirement age. For every year you postpone taking benefits after full retirement age until you hit age 70, you get an 8% boost. If you think you have a less-than-average life expectancy (83 for 65-year-old men; 85 for 65-year-old women), or if you know you’ll need the income to make ends meet, you’ll probably take the money when you reach full retirement age, if not before. But if you have reason to think you’ll live into your nineties or beyond and that your savings could fall short, do what you can to delay taking benefits to get the 8% increase each year you wait. Do your homework to ensure you are best maximizing your potential benefits including coordination with spousal benefits.
Review Your Portfolio
For years, you’ve concentrated on accumulating savings. Now the goal is to preserve your nest egg. You’ll still need to invest for growth to beat inflation and maintain spending, but you don’t want to risk losing a big chunk of your savings. A portfolio with 55% stocks, 40% bonds and 5% cash is a reasonable mix for near-retirees and retirees. More-aggressive investors might adjust the mix to 60% stocks and 40% bonds and cash; conservative investors could do the reverse. Attempt to find an investment mix that you can stomach in good time and bad.
Determine Your Withdrawal Plan
Consider how you want to draw down your savings once you have retired. One long-standing strategy is to use the 4% rule: withdrawing 4% of your portfolio per year for living expenses to ideally make your financial assets last as long as you do. Whatever strategy you select, keep in mind the unpredictable nature of investment returns and the importance of monitoring your withdrawal rate to ensure you aren’t overspending relative to your resources.
Don’t Forget Your Health ~ Health Insurance / Medicare
Health care related expenses can take a big bite out of your retirement income. If you retire before age 65, you will need to secure continued health insurance until you are eligible for Medicare at age 65. You can then sign up without penalty anytime from three months before until three months after the month of your 65th birthday. Medicare Part A covers hospitalization and is premium-free, so there's generally no reason not to sign up as soon as you're eligible. Part B covers outpatient care, including doctors' visits, etc. Seek assistance from an insurance professional to help you identify what plan best fits your needs and budget.
Bottom Line? If you fail to plan you plan to fail.
SOURCES, RESOURCES & EXCERPTS
Kiplinger.com- Sept. 2016 – Important Steps to Take in the Year Before You Retire