Even if you’ve enjoyed a high income and accumulated substantial assets during your working years, your financial future may not be secure after you retire. A haphazard approach to managing your investment portfolio can leave you broke.
Clearly, relying on Social Security — which might cover only 25 percent of your living expenses — isn’t the answer if you’ve achieved a certain level of success. Now is the time to discuss your investment strategy with a professional who can help you minimize volatility and other risk factors.
Getting Started
You and your financial advisor will start by looking at all of your income sources, as well as your portfolio, and then project your financial needs through your life expectancy. After you factor in 2 to 3 percent per year for inflation, you’ll be able to calculate how much you’ll need to pull out of your investments to replace your income. If that differential is more than 5 percent, you don’t have enough to maintain your lifestyle.
Your financial advisor should also help you evaluate the appropriate level of risk within your current portfolio. If your portfolio model has had a downswing of more than 13 percent in any given year, it’s too risky for the years approaching retirement.
You need a wealth management strategy to make sure you’ll have enough money to live comfortably throughout your entire retirement. Balancing your portfolio risk is a crucial first step, but it’s not enough. Follow these three tips to prevent your dream retirement from turning into an impoverished nightmare.
Tip 1: Keep Managing Risk And Return
With interest rates at historic lows, there’s simply no way to remove all risk from your portfolio and still generate returns. To build your assets during retirement, you’re still going to have to take some investment risks.
Tip 2: Continue To Make Good Tax Decisions
Don’t draw too heavily on the investments that were tax deferred. If you do so, your taxable income may increase too much. This could lead you to have to draw even more to pay your higher tax bill, which then leads to an even higher tax bill. It’s a vicious circle you need to avoid.
Tip 3: Focus On Building Income For The Future
Just because you’re retired doesn’t mean you have to stop earning money or cease working altogether. Generating income from annuities or real estate could be a good way to continue to grow your assets throughout your retirement. Also, you may want to consider working part-time or consulting in your early retirement years to ensure you don’t run out of money in your later years.
Want to learn more about securing the retirement of your dreams? Download our tip sheet for more advice.
Don’t let your dream retirement turn into a nightmare. Download our tip sheet, 5 Financial Tips To Avoid Eating Cat Food When You’re 80.
