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BLOG: 8 Planning Tips For A More Enjoyable Retirement

enjoyable retirementAs people plan for retirement, it is no longer considered the end of something but rather the beginning of a new adventure and even an exciting phase of life. The individuals and couples that I speak with envision a retirement where they’re engaged in their favorite activities, causes, and passions. This leads to the question, “How can I pay for what I want to enjoy over an uncertain period of time while not running out of money?”

Life expectancy has increased over the years. According to the Social Security Administration, the average life expectancy for a man reaching age 65 is about 84 years, and for women, it’s more than 86 years. As a result, it is not uncommon for near retirees to be concerned about running out of money. Here are 8 tips to help you enjoy this exciting phase of your life while hopefully worrying less about money:

Get a written financial plan. Who among us doesn’t use some kind of map on a long road trip? Well, planning a multi-decade financial journey without a written ‘road map’ would be equally foolish. Writing a financial plan is a complex endeavor. So if you don’t have the expertise, carefully interview a fee-based Certified Financial Planner™ who may be able to help. And if you are only interested in a written plan (without any ongoing relationship), be clear about that in the initial engagement. After all, you get to set the ground rules.

Learn about financial planningor work with someone you know and trust. There are many people who self-direct their financial planning. Oftentimes it is something they enjoy because their financial situation is basic and can be easily understood. However, if there is uncertainty, complexity or questions about running out of money later in life, finding a qualified, trusted confidant to help guide you may be very beneficial. Just make sure they are putting your interests first and not just trying to sell you an expensive product.

Understand your benefits such as Medicare, social security and any pensions or annuities. It is helpful to read about these prior to your age of eligibility, so you can plan and maximize benefits based on your situation. If you are fortunate enough to have a pension or an annuity that will pay lifetime income, learn about and understand the features (e.g., what are the cost-of-living adjustments and will the withdrawal amount change as you age?).

Build reliable sources of cash flow. Many people like that social security is a reliable source of cash flow and do not like the risk inherent in the stock market. If that sounds like you, consider using an annuity as an additional source of reliable cash flow. In the recently passed ‘Secure Act,’ lifetime income strategies, such as annuities, were given a boost and a nod of acceptance. To be sure, many annuities are complex and expensive, and they should only be added to a portfolio in a prudent and ethical manner. Nevertheless, they are also a way to get supplemental lifetime cash flow guaranteed by an insurance company. Guarantees of an annuity depend on the issuing company’s paying ability.

Monitor your portfolio risk. As part of your written financial plan, you should have an estimated asset allocation that you are comfortable with. Unfortunately, things don’t always go as planned and stocks could suffer from severe shocks—or benefit from a run-up. In this latter case, you could wind up having more money in stocks than you planned and a reallocation may make sense to bring your stock allocation back in line.

Understand how interest-rate changes affect your income. With the recent drop in interest rates, many retirees may be shocked to see how much their income has dropped versus a year or two ago. This is referred to as “interest-rate risk.” Investors in countries like Japan have been dealing with this for decades. If interest rates stay low, then retirees who rely on bonds and bank interest to generate cash flow will likely be dealing with a decline in income and may need to withdraw the principal to pay their bills.

Plan for taxes in retirement. Many people don’t realize that their pension income, most of their social security and all withdrawals from pre-tax IRA’s and 401(k) plans are taxed at ordinary income-tax rates. As a result, retirees also face complex challenges when it comes to portfolio construction, asset location and withdrawal strategies. While the long arm of the tax man cannot be fully avoided, working with competent professionals may help you reduce your tax liability.

Get comfortable with technology. Financial transactions are increasingly handled electronically. It is common for financial firms to communicate online and use electronic signatures to complete transactions. They also provide information and answers to questions on customer-centered websites. If you can embrace the technological change, you might actually find it easier and enjoy the convenience!

These are just a few of the numerous strategies for approaching your retirement planning. Having a strong and deep understanding of a broad range of financial issues will help you have confidence in your plan and not worry as much about money. It may also be wise to find a trusted expert to help guide you. After all, you worked hard to reach retirement, so enjoying your retirement years should be a priority.

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Mark Avallone, MBA, CFP®, CRPS®

About Mark Avallone, MBA, CFP®, CRPS®

I am the Founder and President of Potomac Wealth Advisors, an independent financial advisory firm headquartered in Rockville, MD and author of Countdown To Financial Freedom: Your Path To A Meaningful And Vibrant Retirement. My commentary on the markets and the issues facing investors has appeared on the CNBC, CBS, NBC, FOX News Channel, Fox Business Network and in USA Today, US News and World Report, The Wall Street Journal and other publications. Previously, I was a Senior Vice President in The Private Bank of Bank of America and a VP in the Corporate Banking Division of Mellon Bank. I am a CERTIFIED FINANCIAL PLANNER practitioner, a Chartered Retirement Plans Specialist(™) and hold an MBA degree from Rutgers University. I am a proponent of financial education and have been an Adjunct Professor of Finance at The University of Maryland University College. For more information please visit my website, www.PotomacWealth.com. You can contact me at 301-279-2221 or at Mark@PotomacWealth.com

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