Are you like me?
I like following directions. When my kids were small, the first thing I did after opening a toy on Christmas morning was to read through the directions and make sure that I followed them step-by-step to minimize my frustration and make sure that everything was put together correctly.
If I’m following a recipe, I’m going to read through each step carefully and make sure that all my measurements are exact so that the final product is just as it is intended.
I’m just the kind of person who likes step-by-step instructions to make sure that I do things right and that the work and product comes out the way it was designed.
Planning for a successful retirement has a recipe as well.
To get the right outcome, make sure you follow all the steps thoroughly. In this article will overview the six steps and then in future articles go into detail.
STEP 1 – Define Your Retirement Goals
We start by defining what were trying to accomplish in retirement. These are the tangible financial goals such as replacing our work income, having travel funds, helping kids or grandkids, replacing our cars, and so on. An effective goal includes the “what”, the “how much”, and the “by when” so that we can fully know if the goals have been accomplished.
STEP 2 – Summarize Your Retirement Resources
You will be accomplishing your retirement goals with your available retirement resources, and so making sure you fully understand and quantify them will be supremely important. You have retirement income resources such as Social Security, pension, rental income, or annuity income. You also have investment asset resources such as IRAs, 401(k)s, and your housing wealth.
STEP 3 – Strategically Deploy Your Retirement Resources
Here’s where true strategy begins and where professional expertise can come in handy. You need to effectively elect how to receive your predictable income sources such as Social Security and pension. You also need to determine how to allocate each investment dollar to the primary goals of income, growth, liquidity, and protection.
STEP 4 – Effectively Manage Cash Flow
During your working years you could simply make more money to cover up sloppy cash flow. In your retirement years your margin of error is much thinner and having an effective strategy to manage your incoming “retirement paychecks” will be critical to ensure that you don’t take more out of your accounts than is needed so that it can last.
STEP 5 – Manage or Eliminate Retirement Risk
You will want to make sure the right kinds and amounts of insurance and risk management strategies are in place to effectively deal with the most sinister of retirement risks which could derail your plan. This includes the premature death of a spouse, unexpected long-term care costs, and a major market meltdown during retirement while you’re taking money out for income.
STEP 6 – Optimize Tax Liability in Retirement
If you’re like most retirees, you’ve accumulated a majority of your retirement assets in tax qualified plans that will be fully taxable we take them out. With proper proactive planning you can minimize the total tax liability by taking advantage of lower income tax brackets and minimizing Required Minimum Distribution after the age of 70 and ½.
If you have any questions please feel free to contact me.