Decisions await for investors nearing retirement age
For many investors, retiring is a challenging financial transition. Not only are you faced with a number of important lifestyle decisions, like where and how to live, you’re also likely to be dealing with the most money you’ve ever had to manage.Trying to manage employer pension plans, Individual Retirement Accounts, stock and mutual-fund investments, and estate planning for a rewarding retirement can be daunting. To avoid costly mistakes at , here are a few suggestions:.Take inventory Before making any decisions, take a step back and assess all your assets, including savings and checking accounts, stocks, bonds, mutual funds, IRAs, employer retirement plans, Social Security, and in some cases your residence. Any debt you are carrying should also be tallied and subtracted from your asset total. The difference is your net worth.Knowing your net worth will help you create realistic financial objectives and a budget. This information is also useful in evaluating your asset allocation and planning an investment strategy.Asset allocation Finding a comfortable balance of stocks, bonds and cash for your portfolio during retirement will help you meet your financial needs and reduce the impact of market swings.For many years, experts agreed that at retirement all assets should be shifted to low-risk fixed-income products like Treasury bonds and certificates of deposit. Regular income from these investments was often expected to cover day-to-day expenses through a short retirement. But thanks to improvements in medicine and technology, retirees are now living longer. Retired investors who use a fixed-income-only strategy today may be at serious risk of not being able to combat inflation and maintain their standard of living.To avoid financial hardship, you should plan for a retirement of as much as 30 years, depending on your age and health. In view of this, devoting a portion of your assets to equities, most of which are more aggressive investments than fixed-income products, is often recommended. A financial advisor can help you develop a plan that is tailored to your objectives, age, health and assets.Remember, asset allocation does not assure or guarantee better performance and cannot eliminate the risk of investment loss.Pensions and IRAsJust as each employer retirement plan has its own rules for participation, rules for distribution also vary. In most cases, a retiree can elect to receive a lump-sum payout, roll the amount over into a traditional IRA, or receive the money via periodic payments over a specified period of time.Before you decide which option is best, factors like your age, health, other savings, and current tax situation should be evaluated, along with how much after-tax money you would receive from each option.Another important decision facing retirees is what to do with assets in an IRA. If you are between 59 and 70, you can withdraw as much or as little from your traditional IRA as you like, without penalty. The withdrawal will be subject to ordinary income tax, and the amount remaining in your IRA will continue to potentially grow tax-deferred.By April 1 of the year after the year you reach age 70, you must start taking required minimum distributions based on your life expectancy. If you fail to take the required amounts, an IRS penalty of 50 percent of the amount you should have taken is assessed.Unlike a traditional IRA, the Roth IRA does not require minimum distributions at any age.Estate planningIf you don’t already have an estate plan at retirement, it’s not too late. An estate plan is essential to ensuring that your wealth is passed along exactly as you intend, with minimal delay and erosion by federal and state taxes.Because estate taxes can consume a significant portion of an inheritance, it’s a good idea to work closely with a financial adviser, as well as your legal and tax advisers when crafting an estate plan. Depending on your assets and tax situation, a number of different strategies, including gifts and trusts, can help reduce estate taxes.This overview highlights some of the major financial decisions that must be faced at retirement. To learn more about managing your assets for a rewarding retirement, contact your financial adviser.The accuracy and completeness of this material are not guaranteed. The opinions expressed are those of Fraser M. Horn and Dudley M. Irwin and are not necessarily those of Berthel Fisher or its affiliates. The material is distributed for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Fraser M. Horn and Dudley M. Irwin are registered representatives of, and securities are offered through Berthel Fisher & Company Financial Services, Inc. Member NASD/SIPC.
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