It’s spring-cleaning time, and this year I hope you look at freshening up your retirement plan. While the results may not be as visually satisfying as pulling into a well-organized and clean garage, the long-term implications are significantly greater.
Retirement planning spans most of your life, from the time you launch your career until you take your final breath. Stashing money in IRAs or 401(k)s is part of the planning, but there’s a lot more to consider. Here are five retirement-planning factors that deserve your attention:
• Taxes As Ben Franklin pointed out, they are a certainty. Whether you’re working toward retirement or living in it, taxes are an important consideration. If retirement is in your future, utilize an appropriate mix of Roth, traditional and taxable accounts, which allows you to reduce your taxes today, build a stream of tax-free income and retain the flexibility to access money when you need it. During retirement, you want to be strategic about which accounts you pull money from to save tax dollars and extend the sustainability of your portfolio.
• Longevity There’s always a risk that you’ll outlive your assets. According to Social Security, the average 65-year-old man can expect to live to 84. As a couple, your life expectancy will extend well beyond that figure. Are your finances prepared? Tools like immediate annuities, longevity insurance and careful attention to the next two factors I’ll discuss are all part of ensuring that you are prepared for the long haul.
• Savings rate If you’re still working and saving for eventual retirement, are you saving enough? A common rule of thumb is to save 10 percent for retirement. That may work for a 22-year-old, but probably not for a 52-year-old. My point? There’s no time like this spring to work with an online calculator or engage the help of a financial planner to see where you stand. Your savings rate is one of the few “retirement levers” over which you have sole control. Use it liberally.
• Withdrawal rate Similarly, retirees have at least a modicum of control over how much money they are pulling from their retirement portfolios. These withdrawals should not be a fire-and-forget proposition. Outsize (or undersize) market returns, changing expenses and ever-present inflation all need to be accounted for. Is your current program sustainable?
• Portfolio management As of the end of 2019, we have enjoyed a bull market for over a decade. I have no crystal ball, but it would seem we are due for a reversal. If nothing else, that makes this spring an ideal time to review your portfolio. If you’ve let the winners ride for the past decade, you may be in a much more aggressive spot than makes sense given your personal situation. There’s no one-size-fits-all approach to address any of these factors, but they should all should be part of your lifetime of retirement planning.
J.J. Montanaro is a certified financial planner with USAA, The American Legion’s preferred provider of financial services. Submit questions for him online.