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Planning for Retirement

Six guidelines for saving success

WILLIAM J. LYNOTT

For most, retirement means switching from a life of increasing income to one of decreasing income. This requires skillful management to ensure we don’t outlive our money.

Follow these guidelines to help ease the transition.

1 Review your statements

Every month, review your latest statements from banks and brokerages to add up your total manageable assets. Include any cash on hand, CDs etc., but not liabilities or the value of real estate, cars, etc. This way, you know exactly where you stand each month and whether your finances are higher or lower and by how much.

2 Simplify your finances

Wherever possible, consolidate bank, brokerage and retirement accounts, and limit yourself to one or two credit cards. This makes it easier for you to analyze and manage your assets.

3 Match investments to your retirement needs

Always diversify your assets to avoid damage to your portfolio should a serious failure occur in one of your investments. Once properly diversified, allocate those assets accordingly among the three broad classes of investments: stocks, bonds and cash.

4 Rebalance allocations

It’s common for one of your asset classes to grow or shrink enough to change your allocations from your plan. When that happens, rebalance them by selling one asset and shifting the money to another as necessary. Although everyone is different, experts agree that, in general, investments in stocks should decrease in favor of bonds and cash as you age.

5 Maintain one year’s worth of cash

Add up your dependable income, such as Social Security and pension, and add enough cash to cover your expected expenses for one year. This will help avoid having to cash out an asset at an inconvenient time to cover an unexpected bill.

6 Remember the 4% rule

Many economists say all you need to do is withdraw 4% of your nest egg the first year of retirement and increase that amount each year by the rate of inflation to give you 90% assurance that your savings will last at least 30 years. Remember, after you reach age 70½, required minimum distributions from your tax-deferred retirement accounts will provide cash in amounts that depend on the size of those accounts.

A solid foundation

Following the basic guidelines in this article will provide you with a solid foundation for creating your total plan. OM

Information in this article is provided for educational and reference purposes only. It is not intended to provide specific advice or individual recommendations. Consult an accountant or tax advisor for advice regarding your particular situation.

MR. LYNOTT IS A FREELANCE WRITER WHO SPECIALIZES IN BUSINESS MANAGEMENT AS WELL AS PERSONAL AND BUSINESS FINANCE. VISIT WWW.BLYNOTT.COM, OR SEND COMMENTS TO OPTOMETRICMANAGEMENT@GMAIL.COM.