Will you outlive your money?
Are you thinking of retiring but have questions about the sustainability of your assets? You’re not alone. Post-retirement financial planning involves more than investment decisions. A comprehensive plan encompasses developing strategies to maintain purchasing power in the face of inflation, preparing for emergencies and major events in the future, determining the timing for withdrawing money from retirement plans, and planning how best to use proceeds from the liquidation of assets (sale of a home or business, lump sum distributions, etc.) In addition, there are issues concerning financial responsibilities in the event of disability or impairments and the eventual distribution of assets to beneficiaries.Your post-retirement financial plan should begin with the basics: net worth, income and expenses. Analyzing these three factors will help you determine how long your assets will last at various rates of investment return, inflation, and spending. Together, you and your financial professional can determine both your current income needs and the amount of growth you will need in your assets in order to meet anticipated future expenses. From that start, you can devise a diversified investment plan that might include annuities, stocks, bonds, short-term instruments, real estate and other investment classes to help you meet your goals. Your plan will also address timing decisions, budgeting, taxes, insurance, and your estate.Increasing expensesWith the cost of medical care and other major expenses for the elderly rising rapidly, there is real anxiety about eventually outspending assets. One way to relieve that anxiety is to budget for savings early in your retirement, so you can continue adding to your assets. In later years, if the income from your investments is not sufficient, your plan can encompass systematic withdrawals from principal to supplement income.Of course, the key to living comfortably in retirement is to maximize the income your assets generate. First, you will want to consider the nature of your retirement assets and the sequence in which to liquidate them. Failure to consider timing decisions could result in extra taxes or penalties-and compromise the size of your nest egg.Tax efficiency of investments is another important consideration. Once assets are no longer tax-deferred, you want to make sure that buying and selling decisions – whether you make them yourself or with a fund manager – minimize the amount of taxes you owe.If you are investing in fixed income securities whether tax-free or taxable securities, consider “laddering” maturities-that is, buy securities that mature in different years. That way, if interest rates go up, you don’t have everything locked into today’s low interest rates.Will my estate benefit others?For retirees, a critical element of financial planning is estate planning. If you’re fortunate enough to have sizable assets, there is much you can do now to ensure that those you hope to benefit receive the largest possible value of your bequest.No matter the size of your assets, everyone should consider having a basic estate plan that includes a will and/or living trust, a durable power of attorney, a living will, and nomination of a conservator or guardian in the event of disability. For those whose assets are large enough to potentially trigger estate taxes*, there are many additional considerations including use of the Unified Tax Credit, Marital Trusts, and Life Insurance Trusts to help fund estate taxes. Annual Gift Tax exclusions, donating appreciated property to a charitable trust and other programs may help minimize your estate taxes. Your financial professional, together with your attorney and tax advisor, can help you establish or review your estate plan to make sure it still reflects your wishes.Jeffrey Apps and Tracy Tutag offer securities and investment advisory services through AXA Advisors LLC (member NASD, SIPC) 1290 Avenue of the Americas, New York, NY 212-314-4600 and offers annuity and insurance products through an insurance brokerage affiliate, AXA Network, LLC and its subsidiaries. They can be reached at 926-6911 or Tracy.Tutag@axa-advisors.com.
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