Planning for retirement is a multistep process that takes time and wise investment choices. After all, to thrive in retirement, you’re going to need a substantial cushion to fund it. Here the financial advisors at Maggi Tax Advisory and Financial Group offer the following tips to help with your retirement planning.
Tip #1: Timing is everything.
Your current age and the age you plan to retire are the groundwork of an effective retirement strategy. If you have 30-plus years until retirement, go ahead and put a large percentage of your portfolio into higher-risk stocks. However, if retirement is less than 10 years away, your portfolio should be focused on an income stream and the preservation of capital. This is when you should invest in securities, such as bonds, that are less volatile.
Tip #2: Determine your retirement spending needs.
Many people think they will spend 20 to 30 percent less in retirement, a theory that is often proven highly unrealistic, especially if you still have large bills to pay (mortgage, unforeseen medical expenses, etc.). Not to mention, you retired for a reason and want to enjoy it! To do so, you must save and invest accordingly.
A key factor in the longevity of your retirement portfolio is your withdrawal rate. This will help determine how much you need to withdraw for expenses and how much you can continue to invest into your portfolio.
Tip #3: Calculate After-Tax Rate of Investment Returns.
Once you determine the timing of retirement and realistic expenses, you need to calculate the after-tax rate of return to assess how much your investments will produce as a form of income. Long-term, riskier investments will have a higher rate of return, great if retirement is 30-plus years away. But as you age, low-risk retirement portfolios are largely composed of low-yielding fixed-income securities.
For example, if your retirement portfolio is worth $400,000, and your income needs to be at $50,000, you are relying on a 12.5% rate of return to get by – a completely unrealistic expectation. An ideal scenario is a gross retirement investment account of $1 million with an expected return of 5 percent.
Tip #4: Assess risk tolerance vs. investment goals.
The advice of an experienced and knowledgeable financial advisor such as Maggi Tax Advisory is key at this stage of retirement planning as it involves allocating funds with a balance of risk aversion and return objectives. At Maggi, we will help determine the risk you should take to meet retirement objectives as well as how much money should be allocated to funds such as risk-free Treasury bonds.
Tip #5. Make your estate planning work for you.
Having a proper estate plan complemented by life insurance coverage not only ensures that your assets are properly distributed upon your death, but it could also significantly lower your tax bill. How? By gifting assets to your beneficiaries rather than passing them through your estate. A knowledgeable tax advisor will determine if this is the right move for you and for your portfolio.
Maggi Tax Advisory and Financial Group can help with your retirement planning!
To learn more about our established financial services firm or to schedule an appointment, please contact our Hillsborough office at (813) 829-1924 or our Pinellas/Pasco location at (727) 493-7295.
