A man approaching retirement reviews his investment portfolio.
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For many, retirement seems like crossing the finish line. You’ve spent your working years building wealth, and now it’s time to manage and spend that money. Basically, it’s true – your financial outlook will change significantly when you no longer have a normal income stream. However, it is important to remember this retirement it includes many of the same concerns and focuses you’ve always had with your money, from tax planning, household budgeting and even inflation.
Your asset allocation and portfolio composition remain as important in retirement as they were during your working years. And if you’re 62 and planning to retire soon, structuring your portfolio appropriately is paramount to ensuring your money lasts.
Retirees in America can expect an average life expectancy in the 80s. This depends on several factors, but ultimately if you’re 62, you should expect to live another 20-25 years, and hopefully significantly more.
This means you need to plan for longevity and continued portfolio growth. One of the important issues here will be to find a good balance between risk management and accumulation. You want to keep that money safe, but you don’t want it languishing in a savings account for the next 25 years, earning less interest than some investments can offer.
One approach is, for example, to divide your portfolio into parts or groups based on your wants, needs and capacity for growth. Calculate the monthly budget you’ll need for necessities, then plan to generate that income through safe assets like bonds or annuities. Take another part of your portfolio and dedicate it to your lifestyle – the money you want but could (literally) live without, and invest it in a more diversified collection of safe and growing assets.
Take the rest and put it into a more equity-focused long-term growth portfolio. This is your future money, growth that will continue to build your wealth against future spending and inflation.
Whichever way you choose to structure your portfolio, the key issue is balancing your competing needs for safety and growth. Use safer assets to pay bills and use more speculative assets to build lasting wealth, because retirement isn’t the end of your money management. It’s just the next phase of that.
Thinking about retirement means thinking about longer terms than most households are used to. Instead of planning for the coming months, it’s time to plan for the years and decades ahead. This means paying attention to long-term costs.
Among other questions, you should anticipate inflation. Even with the Federal Reserve’s benchmark rate of 2%, inflation will double your cost of living every 35 years or so. these living expenses increases are one of the reasons why you should plan for growth, not just safety, in your portfolio. Your money needs to keep up with the rising prices of goods and services.
While you’re at it, don’t forget about taxes. Unless you own assets in a Roth portfolio, you will pay income tax on all your withdrawals. This is an easy asterisk to miss, so remember that $100,000 in distributions will mean living on more than $70,000-$80,000 depending on where you live. Based on your tax status and cash in hand, a Roth IRA conversion can help you significantly mitigate those taxes.
Finally, there is the longest-term planning of all. You don’t necessarily have to start all the way estate planning at 62, at least not beyond the basic tasks that all adults should have in their desk drawer. But it is something to be prepared for. You’ll want to create a proper estate plan sooner rather than later, and as you structure your portfolio for growth and decline, be sure to anticipate it.
Your portfolio is a source of income, but it’s also important to monitor your spending. So keep an eye on your household budget.
When you retire, plan your household budget. How much do you spend? what do you need what do you want What kind of lifestyle do you want to have? All of these questions will be important as you transition to a more fixed income with less opportunity to give yourself a raise in the years to come. As noted above, this type of budgeting is also necessary for portfolio management. You’ll need to know your needs to understand how you can invest in growth and security.
As you do this, remember to anticipate areas of new or rising costs – especially health care. You may need additional insurance, including gap insurance or long-term care insuranceand this will add new monthly costs.
You may also have increased out-of-pocket health care costs. Hopefully these expenses won’t be incurred right away, but you should budget for more medical expenses as the years go by. That money will have to come from somewhere, and the sooner you plan for it, the better you can afford it. AND financial advisor can help you anticipate these costs and make a plan to pay them.
A woman reviews her monthly finances using a budget app on her phone.
As you enter retirement, it’s important to start planning how your spending, budgeting and investments will change. Calculate your spending and what investments you need to meet that budget, because the end of work does not mean the end of money management. The answers will help you learn how to structure your portfolio and allocate your assets.
AND financial advisor can help you create a comprehensive retirement plan. Finding a financial advisor doesn’t have to be difficult. SmartAsset’s free tool connects you with up to three trusted financial advisors serving your area, and you can have a free introductory conversation with your advisors to decide which one is right for you. If you’re ready to find an advisor who can help you reach your financial goals, get started now.
We spend so much time focusing on how to save and invest for retirement that it’s easy to forget the importance of how you invest during retirement. This type of investment is critical, so it’s important to learn how to do it.
Keep an emergency fund handy in case you run into unexpected expenses. An emergency fund should be liquid — in an account that isn’t exposed to significant fluctuations like the stock market. The trade-off is that the value of current money can be reduced by inflation. But a high interest account allows you to earn compound interest. Compare the savings accounts of these banks.
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