You made it. You are retired.
Your new job will be doing whatever you want! Sounds good, right?
Retirement can be a wonderful time. It’s a Life Event that usually happens to each of us at some point. Life Events are sometimes expected and other times a complete surprise. They often come with sudden wealth.
Retirement can come with the largest sum of money you’ll ever have to deal with. So it’s important that you make good decisions.
Understanding your retirement
Whether your retirement was planned, or shall we say, not planned, there will be many changes. You may want to discuss the details with your financial advisor, tax professional and attorney first. Here are a few things you’ll want to figure out:
Assess the retirement assets you have. I know I preach about financial planning, but retirement is an ideal time for it. It will help you get a complete picture of your retirement assets. You’ll need to know balances in your retirement plan from your former employer. You’ll also need to check the value of any IRAs you have. Do you have annuities, brokerage accounts or CDs? Include all of these as retirement assets.
Next, analyze your income and expenses. This is a critical step. Get a handle on what will be coming and going. Typically income as well as expenses go down in retirement, but that’s not always the case. Find out what sources of income you’ll have. Do you have a pension? Are you receiving any legal settlements or annuities? How much income will your portfolio produce?
Decide when to take Social Security. If you don’t need the income, then you may want to defer taking Social Security. If you wait till your full retirement age, you will receive 100% of the benefit. If you defer longer, then your benefit will increase. If your portfolio and other sources are not enough to cover your expenses, then you may need to take Social Security right away. Coordinate this with your spouse too.
Transitioning your portfolio for retirement. Sudden wealth from retirement can come with additional income, taxes and estate issues. You may have a very large rollover to deal with. Depending on whether you need income or not, you may have to change the composition of your portfolio. If you need income from your investments, then it will be less about growth. However, don’t invest too conservatively. You’ll still need a portion of your money in investments that can grow your portfolio over inflation. Work with your financial advisor to find the optimal balance of income and growth.
Other questions you may have
When do I have to take mandatory IRA distributions?
How can I generate portfolio income in a low-interest rate environment?
Do I need long-term care insurance? How much?
Do I still need life insurance?
Can I gift money to my children?
What will my taxes look like?
Will I be able to travel?
Perhaps the biggest question of all will be: Will I out live my money?
Retirement will be one of life’s most exciting and challenging events. If you just retired and are staring down the barrel at all these decisions, it may be time to do a little planning. The more chaotic life seems, and the more complex the decisions, planning will give you the clarity to make good choices.
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