Personal Finance

5 Smart Money Moves for a Successful Retirement

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You’ve spent the good part of your life preparing for retirement and now it’s here. You’ve dreamed of the day where you didn’t have to worry about getting to work on time or meeting anyone’s expectations but your own. However, now you have new worries. Will I run out of money? What should I do with my 401(k)? When should I take Social Security?

If these are some of the questions you are facing, here are five money moves that can help you have a successful retirement.

1. Simplify Your Accounts

If you have left a trail of employer-sponsored retirement plans behind, now is the time to consolidate. For most individuals, managing current retirement plans such as 401(k)s and 403(B)s can be difficult.  Knowing how much to invest, when to rebalance, and what investment choices to pick can be a daunting task. Finding time to review a string of previous employer retirement plans can be almost impossible. Most employer retirement plans can be combined into one Rollover IRA. Consult with a Certified Financial Planner in your area to find out the best way to consolidate your accounts. The best strategy is a simplified strategy.

2. Decide When to Take Pensions and Social Security

For those who are lucky enough to be eligible to receive a pension, the first question to ask is, “What options do I have to receive the pension?”  Some companies give individuals a choice. Either they can receive the benefit as a one-time lump sum distribution or receive it as a stream of payments. If you have both options, there are pros and cons to both outcomes. For instance, if you take a lump sum distribution, you have immediate access to your entire pension benefit. However, it is up to you what to do with it from there. If you take the annuity pension distribution, you have guaranteed income for life but you have no input in the investment management decisions. Then, there is the decision of when to take the pension. The most important question to ask here is whether or not you need the money. Often, the longer you wait to receive the benefit, the higher the benefit amount. The same holds true for Social Security. Although it is tempting to start receiving the benefit at age 62, the longer you wait, the higher the benefit. Between age 62 and 70, Social Security benefits grow about 7% a year, not including cost-of-living adjustments. Additionally, for married couples, there are strategies available such as “file and suspend” or “restricting an application” that can help retirees significantly increase their Social Security benefits.

3. Know How Much You Can Spend

Now that you have all the time in the world, do you have enough money? First you have to determine, enough money for what? There are the fixed expenses such as taxes, utilities, groceries, mortgage and car payments and there are the discretionary expenses such as eating out, hobbies and vacations. You need to start by writing down how much these expenses would cost annually. From there it gets a little more complicated when you try to factor in your life expectancy, the amount of your assets, your investment return, etc. Although there are retirement planning calculators online, a Certified Financial Planner can give you a more accurate retirement analysis based on your individual needs.

4. Pay Off Your Debts

We all hope to sail into retirement debt-free with no mortgages, car payments or college loans for our children. However, for most couples, unfortunately this is just not the case. It is important to take a look at exactly how much debt we are faced with in retirement and determine the best approach to pay it down on a fixed income. One option to consider is part-time employment. In this tough economy some employers are looking for part-time help. This is a good opportunity for retirees to find something new and interesting to do, or reignite old passions that could provide income as well as pay down debt.

5. Review Your Investment Strategy

Once you’ve simplified your accounts, it is important to review your investment strategy. Although some investors, especially those nearing retirement, still haven’t recovered emotionally or financially from 2008, it is important to not be too risk-averse. With most retirees facing 20 years or more in retirement it is critical to be properly diversified. One mistake retirees often make is holding too much cash. Although it is always important to have liquid assets as part of a well diversified portfolio, holding too much cash, earning little or no interest, can be detrimental. It is important for retired couples to review their portfolios with an investment professional that can make sure their retirement portfolio is not only diversified and allocated properly, but their investment strategy is consistent with their goals, risk tolerance and time horizon.

If you follow these five smart money moves, you’ll be setting yourself up for a successful retirement.

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