Joe Lucey

It can take years to build up a retirement nest egg. However, without a prudent distribution strategy in place, funds can drain pretty quickly. About half of larger employers that sponsor a 401(k) plan offer a systematic withdrawal option to help retirees establish an automatic stream of income. If that’s not an option with your plan, or if you have a wide array of retirement accounts from which to draw income, you may find it beneficial to develop a coordinated income plan.

Some financial advisors recommend what’s referred to as a “bucket strategy.” This simply means that you assign different retirement income sources to different buckets, usually stratified by a timeline. For example, one bucket may be for immediate income or emergencies, with enough funds to cover expenses for a few months. It would need to be allocated to an easily liquidated account, such as a savings or money market account.

Then you may want to assign a bucket that can provide income over a short timeframe, such as one to five years. This may be an effective way to create a “bridge” between the time you want to retire and the delay of drawing Social Security benefits to help maximize the amount to which you can receive. This short-term bucket might have assets invested in short-duration fixed-income securities, such as Treasury, state and municipal bonds.

As you enter the middle of your retirement, you may want to have a third bucket for providing income over the next five to 10 years. This bucket may be composed of longer-term bonds and perhaps some reliable yield stocks, such as utilities. The last bucket is designed to provide income for later retirement years. This may hold some stocks that perform better over the long term with a strong track record for paying dividends. By waiting until later in retirement to tap this bucket, these securities have the opportunity to grow undeterred by taxes and withdrawals.

Retirees concerned about outliving their buckets may want to consider adding fixed annuities to their overall financial strategy. An immediate annuity can provide immediate payouts early on in retirement, or a deferred annuity can be scheduled to distribute payments at a later date. Either way, both types of  annuities are insurance contracts that guarantee a stream of income for a specific period of time or even for life. We suggest that you work with a financial professional who can help you determine if an annuity would be an appropriate fit for your financial strategy and can recommend which type of annuity would be suitable for your unique situation. We can work with you to help create a financial strategy designed to help you meet your goals; just give us a call.

Downsizing a Stock Portfolio

It’s important to remember that whenever you sell individual stocks or securities, it normally results in a capital gain or loss, which can affect your income taxes.

A capital gain or loss is the difference between the amount paid for the asset and the amount for which it eventually is sold. The tax rate on a net capital gain generally is determined by how long the asset was owned and the taxpayer’s income, but it ranges between 0 percent and 20 percent. However, there are certain types of net capital gains that can trigger a 25 percent or 28 percent tax rate.

 

The content provided here is designed to provide general information on the subjects covered. It is not, however, intended to provide specific legal or tax advice. Contact us at info@securedretirements.com or call us at (952) 460­-3260 to schedule a time to discuss your financial situation and the potential role of investments in your financial strategy.

Remember your first apartment? As young adults, many of us may have used milk crates as bookshelves, turned wood pallets into a coffee table and picked up odds and ends at yard sales. Walls were bare — and often cupboards — but living with less offered more freedom with fewer possessions to clean, fix and insure. Many of us remember those days fondly, not because we struggled financially but because we were happy nonetheless.

In many ways, a happy retirement can emulate some of those characteristics of our youth. One way to help recapture that lifestyle is to downsize. This doesn’t necessarily mean you need to consider selling your home for a smaller one. It’s possible to downsize possessions — things you never use anymore, closet clutter, spare kitchenware, pictures on the walls that your children might appreciate now more than you.

You can try giving up other things that cost you money but that you don’t use: magazine subscriptions you never read; a gym membership you don’t use; a country club affiliation that you stopped enjoying years ago. Again, downsizing doesn’t have to mean getting rid of those things entirely. Go to the public library to read your fill of magazines and newspapers. Check out your local parks and recreation department to see what classes, tennis courts, pools and golf courses are available.

How many times have you forgone an interest because you were involved in too many other things? Now’s the time you can swap out the old and try something new. It may help keep you feeling young.

We can all find ways to cut back expenses and simplify our lives, but it’s important that you don’t regard it as depriving yourself. Downsizing is a way to reach back in time to your 22-year-old self: less stuff, more lifestyle.

 

You are never too old to learn something new, and that means you even can go back to college if you’re interested in furthering your education during retirement.

In fact, by contributing to a 529 college savings plan, you can grow your earnings tax-deferred and then use your qualified distributions to make tax-free tuition payments to an accredited college once you retire – there is no beneficiary age limit. However, be sure to work with a qualified financial professional if you are considering doing this to make sure the allocations within the plan are in line with your retirement strategy. Or, consider applying for permission to audit courses at a local college to expand your horizons and mingle with young, inquisitive minds.

Retirees also may wish to explore lower-cost education options online, such as the wide variety of courses available at MasterClass, www.masterclass.com.

Although economists say the country has recovered from the 2008 recession, many people nearing retirement age would disagree. In fact, according to a recent study by the Bankers Life Center for a Secure Retirement, only 2 percent of middle-income baby boomers believe the economy has fully recovered. More than half of those surveyed reported that their savings are lower than they were before the crisis, and 40 percent stated they are not earning as much as they used to earn.

Unfortunately, sometimes we have to go through hard times to learn important lessons. Today, more baby boomers have built up an emergency fund to help cushion the financial impact in the event of another economic decline in the future. Many also have started working with a financial advisor to help them become better prepared for retirement — including the potential for downturns that could happen once they’ve stopped working.

One of the lessons to come out of the “Great Recession” is the importance of being financially prepared for retirement. We can help evaluate your current financial situation and make appropriate insurance and investment recommendations to help you work toward your desired financial future. Please feel free to contact us for a no-obligation consultation.

 

The content provided here is designed to provide general information on the subjects covered. It is not, however, intended to provide specific legal or tax advice. Contact us at info@securedretirements.com or call us at (952) 460­-3260 to schedule a time to discuss your financial situation and the potential role of investments in your financial strategy.