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Five Financial Planning Steps To Take As You Approach Retirement

Five Financial Planning Steps To Take As You Approach Retirement

By Larry Heller, CFP®

As you prepare for you retirement, there are probably many things on your mind and lots of things to do. To help, here is a list of five things that you should probably make sure that you add to your list.

Retirement Mindset

After working for so many years having so much free time can be daunting.

You need to visualize what your retirement will be like. You must see it. Imagine it. Create it. Visualizing helps make concrete the vague ideas you may have about the reasons for retiring in the first place. What are your dreams? What would like to do. Paint a picture of your life. 5 years from now.

Going thru this exercise will help you transition into retirement and enjoy the second act of your life

Determine Expenses

I am often amazed at how many people have no idea of their overall expenses. I can understand that many may not have a breakdown of specific expenses, but no knowing how much one spends prevents any real planning.

How will you know if your assets will be enough in retirement? How do you put a withdrawal strategy in place? I believe that expenses are singlehandedly the most important factor in building an effective financial strategy. They are the variable over which people have the greatest control. Therefore, before you retire you should get an accurate account of your expenses now and what they project to be in retirement

Recreate A Paycheck

The feeling of not receiving a paycheck and spending your savings can make many people nervous. I recommend recreating that feeling of getting a “Paycheck” each month.

Each month I would set up an auto transfer of the same amount from a savings account to a checking account. The savings account can be funded by various sources such as any government income stream, pension, interest or dividends and cash. If any additional expense is needed a one-time transfer is made. At the end of the year it is each to determine what you spent by adding the 12 transfers plus any one-time transfers. I have found that it helps retirees feel more in control by receiving a “Paycheck” each month.

Revise Investment Allocation

While you were young and had plenty of time before retirement your investment allocation can be more aggressive with a higher asset allocation to equities. As you approach the time that you will be withdrawing from your investments a portion of your money should be in a no risk money market type of investment. You do not want to be forced to sell an investment when it may be down. However, with life expectancy rising and the possibility of living 30 plus years in retirement you also do not want to be too conservative in order to outpace inflation. Continue to monitor and rebalance during retirement.

Minimize Taxes

Determining which investments to draw down from and when will have an impact on the amount of taxes you will pay. Although you don’t want to have taxes control your investment decisions planning out the best way withdrawing from your accounts can minimize the taxes you will pay and help your investment portfolio last longer. A proper draw down strategy can possible save your thousands of dollars in taxes in retirement.

Larry Heller, CFP® is the President of Heller Wealth Management, an independent, fee based financial advisory firm. He is the author of the book, Retire Right: Lots Of People Retire Wrong, Learn How To Retire Right. Larry has appeared on CNN, Fox’s Good Day New York, 103.9FM LI News Radio and has been quoted in The Wall Street Journal and Financial Planning Magazine. He has written articles for Bloomberg Wealth Management and the Journal of Financial Planning. 

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