Millennium Magazine_7th Ed

How to Preserve and Grow Your Wealth in Retirement Many workers focus so intently on saving for retirement that they lose sight of the other side of the equation. Putting money aside for retirement, investing in a workplace retirement plan and controlling spending are all important. However, there is more to retirement planning than just building a robust portfolio. In many ways, the hardest part of retirement planning takes place in those post-work years. The transition from saver to spender can be a tough one for retirees, and stretching that retirement portfolio is easier said than done. If you want to enjoy a comfortable and financially stable retirement, you need to have a plan in place. Here are some strategies to help you preserve and grow your wealth in your post-work years. Track Your Spending and Adjust Your Withdrawals Accordingly The 4% rule is not so much a rule as a loose guideline. While withdrawing 4% your first year in retirement and adjusting those withdrawals for inflation makes sense, this strategy requires careful monitoring. If you want the nest egg you have worked so hard for to last, you should think of the 4% rule as a starting point – not a final destination. A better strategy is to track your actual investment income, including capital gains, dividends and interest, and then compare it to how much you are actually spending. If the income generated by your portfolio covers your spending, you can rest easy. If not, it makes sense to adjust your spending where you can to make your money last as long as possible. Make the Most of Your Cash on Hand Many financial experts recommend that retirees keep a significant cash cushion, as much as two to three years’ worth of spending. By keeping this money liquid, retirees can avoid withdrawing money from their investments during downturns, preserving their wealth and their spending power in the process. Having that much cash on hand might make sense, but it can also be a lost opportunity. That is why it is so important for retirees to make the most of their spendable cash. Putting the money in a high-interest savings account or building a ladder of short-term investments can keep that money working hard while protecting it from a market downturn. Plan for Tax Efficiency During your working years, you could rely on your employer to withhold taxes, but as a retiree, you no longer have that luxury. Many new retirees are surprised at just how taxing things can get, and that is why it is so important to plan for tax efficiency. Over the years, you may have invested in a range of retirement vehicles, from Roth IRA accounts and 401(k) plans to taxable brokerage accounts. Now that it is time to withdraw some of that money, choosing the most tax-efficient options will make a big difference. Even if you never needed a tax professional before, you might want to sit down with an expert during your first few years of retirement. During the meeting, you can lay out your assets and get expert advice on which accounts to tap first. Stay in Balance It is easy to swing for the fences when you are decades away from retirement, but taking too much risk later on could have devastating results. No matter how aggressive you were in your pre- retirement years, it makes sense to invest more conservatively once you stop working. Many financial planners recommend a balanced mix of stocks and fixed income assets in retirement, and that is a good place to start. You can adjust those numbers a bit depending on your situation, but a 50/50 portfolio is always a good place to start. Investors with significant pension income may be able to take a bit more risk, while those who must rely solely on investment income may want to be a bit more conservative, but staying in balance is critical either way. You have spent a lifetime working hard and saving for retirement, even forgoing current expenditures to put more in your 401(k) plan. Now it is time for all that hard work to pay off, but without proper planning, your dreams of a happy retirement could go up in smoke. By making the most of your investment portfolio and being proactive, you can maximize your income while making your money last.