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Will the money in your bank accounts last through retirement? Keep your accounts in the black by following these steps to retirement financial planning:
During quarterly and annual investment checkups with your financial professional, start with two simple questions, advises Mark Rankin, director of Retirement Strategies for Wells Fargo. Did you make what you expected? Did you encounter unplanned expenses or changes in your contributions?
Unforeseen expenses, like a home repair or medical emergency, can quickly derail your retirement savings. Rankin recommends you keep an emergency fund with enough money to cover three to six months of living expenses. Emergency funds should be held in a liquid but stable account so you can access them when you need them. Interest-bearing savings and money market accounts are good options. Steer clear of being overly conservative in the size of your savings reserve. Because a savings account won't match market gains, you should put most of your money in longer-term investments so that it has the chance to grow with time.
Your emergency savings can also act as a hedge against the unexpected. “You can use the emergency fund to supplement income during a down market,” says Rankin.
Investments are fluid. Some are more volatile than others, but all are subject to market fluctuations. Adjust your assets to ensure they align with your current goals and tolerance for risk. Specifically, reduce your risk exposure when retirement nears by choosing more conservative investments.
“Ensure that you understand where your money will be coming from in retirement, such as Social Security and pensions, and how your portfolio is going to generate money,” says Rankin. Are you going to collect interest? Get dividends? How much are you going to have to sell each year to maintain your current standard of living?
Selling any asset can have tax implications, and the proceeds could nudge you into a higher tax bracket. Naturally, you want to minimize taxes when you’re selling assets to generate income in retirement, but Rankin says you must balance that concern with your portfolio’s allocation strategy.
As you weigh the tax implications of a sale with your long-term goals, you may find that transferring assets makes more sense for your estate plan. Your financial advisor can help you review your options.
You and your significant other should be on the same page regarding your financial portfolio. Rankin says your conversations should cover key financial details, such as:
Rankin advises that clients also discuss their spending. Identify what’s nonessential and what’s necessary. When you know where your money goes, you can easily adjust your spending in the event of financial upheaval, without sacrificing the essentials.
Ask those you are close to — maybe your children or grandchildren — to be part of the conversation. They should understand your goals and resources. Retirement planning is an ongoing process — these are not steps you should take just once. But taking them, and repeating them as needed, will help ensure your retirement funds last as long as your retirement years.
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These articles have been prepared for informational purposes only and are not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. The accuracy and completeness of this information is not guaranteed and is subject to change. Since each investor’s situation is unique you need to review your specific investment objectives, risk tolerance and liquidity needs with your financial professional(s) before a suitable investment strategy can be selected. Also, since Wells Fargo Advisors does not provide tax or legal advice, investors need to consult with their own tax and legal advisors before taking any action that may have tax or legal consequences.
Retirement Professionals are registered representatives of Wells Fargo Advisors, LLC. Wells Fargo Advisors is the trade name used by two separate registered broker-dealers: Wells Fargo Advisors, LLC and Wells Fargo Advisors Financial Network, LLC, Members SIPC, non-bank affiliates of Wells Fargo & Company. Discussions with Retirement Professionals may lead to a referral to Wells Fargo Advisors’ affiliates including Wells Fargo Bank, N.A. Wells Fargo Advisors and its associates may receive a financial or other benefit for this referral. Wells Fargo Bank, N.A. is a banking affiliate of Wells Fargo & Company.