Improve Your Retirement Plan Outlook
When most people think about retirement planning, they put the focus on growing their money. Their mood may rise and fall with every roller-coaster turn of the daily stock market reports, or when they see the bottom line on their quarterly 401(k) statements.
But there’s more to building a solid retirement plan than accumulating money. Eventually, you’ll want to shift gears and preserve what you’ve built.
With that in mind, here are five things you can do right now to help improve your retirement outlook:
1. Make an income plan.
As a financial services company, the number one question we hear is, “How do I build a plan so that I won’t run out of money for myself or my spouse during our lifetime?” After all, your retirement outlook would likely change significantly if you don’t have enough money, wouldn’t it?
The answer is to start by figuring out how much money you’ll need to cover your expenses, including fixed expenses (mortgage or rent payments, insurance premiums, etc.), variable expenses (clothing, car maintenance), debt (outstanding student loans for yourself or your children, credit cards) and any one-offs (a new roof, for example, or a big vacation you plan to take).
Your guaranteed sources of income, such as Social Security or a pension, will be used to pay those expenses. If they aren’t enough, your advisor can help you find others.
2. Make a protection plan.
You probably wouldn’t consider going without fire insurance for your home, even though the odds of your house burning down are low – about 3 percent.
Similarly, it’s important to hedge against risks that can “burn down” your income plan. For one example, the chances are much higher than in the past that you’ll have some kind of long-term care need that is expensive and ongoing, especially considering we are all living longer. As a result, you’ll want to be prepared for this very real risk.
Estate planning can help your heirs pay less in taxes – particularly in states that have an estate tax, as the exemptions levels are usually much lower than the federal level. And you’ll want to make sure that if one spouse passes away, the other will have enough income to last the rest of his or her life.
3. Make an appreciation plan.
Now that those first two pillars of your retirement plan are taken care of, it’s time to talk about how to continue to grow your money.
Whether it’s conservative or aggressive risk, it’s up to you, because these are the dollars you will have left after you’ve built your income and protection plans.
4. Make a tax plan.
The goal, of course, is to keep your taxes as low as possible.
There are a variety of ways to do this. One example is to use separately managed accounts as opposed to mutual funds. Both are managed by professional portfolio managers, and they may even contain some of the same holdings. But owners of separately managed accounts have more flexibility to buy and sell securities in ways that have favorable tax consequences.
5. Make a legacy and estate plan.
To put to rest any concerns about taking care of loved ones in the future, consult with an attorney to be sure to get all the legal documents necessary to ensure the efficiency of your estate, including a health care power of attorney, financial power of attorney, health care directives, wills and trusts.
Smart strategizing also can help reduce estate taxes, so if you didn’t address this in your protection plan, get to it during estate planning. Consult with a professional tax and/or legal advisor before taking any action that may have tax or legal consequences.
Perhaps you’ve already begun pushing the pieces of your own five-pillared retirement plan into place. Typically, five years before retirement is a good time to sit down with a financial advisor to prepare your retirement plan. If you are worried about your retirement outlook, an advisor near you may be able to help you with your concerns.
By Chris Harlow, CPA, Investment Advisor Representative
Kim Franke-Folstad contributed to this article.
Copyright 2016 Kiplinger Washington Editors
Kim Franke-Folstad, Chris Harlow, Kiplinger and Mutual of Omaha Investor Services, Inc. are not affiliated.
Registered representatives offer securities through Mutual of Omaha Investor Services, Inc. Member FINRA/SIPC. Investment advisor representatives offer advisory services through Mutual of Omaha Investor Services, Inc.