Retirement planning is a key component of investment management, and financial planning encompasses both. In this post, we will focus on how financial planning helps individuals determine their retirement goals, estimate their retirement income needs, and develop investment strategies aligned with their retirement objectives.
Determining Goals and Needs
Many older Americans are wondering, “How much do I need for retirement?” The most basic way to estimate your needs is to examine your current spending and determine how it might change in retirement. (Will you pay off your mortgage by then? Do you still have a child to put through college? Will you change homes or move to a new region of the country?) There are many variables we often see as planners, but aside from static living and discretionary expenses, retirement income needs to be stress tested with varying growth and inflation rates. If you’re planning on major activities after you retire, such as travel or pursuing an expensive hobby, you may need to budget those expenses indexed at an appropriate inflation rate for the post-retirement period as well.
Formulating Tax-Efficient Withdrawal Strategies
When it comes time to retire, a majority of people will depend largely on Social Security benefits coupled with funds that are presently in pre-tax retirement accounts, including individual retirement accounts (IRAs) and 401(k) plans. A significant portion of retirees will also rely on assets that are currently being held in taxable, tax-deferred, and tax-free registrations; these might include brokerage accounts and Roth accounts and non-qualified annuities. A sound financial plan will afford the client flexibility to draw from a number of accounts with varying tax registrations during retirement. This will not allow for significant tax efficiency during life, but may also provide valuable estate planning benefits to heirs.
Asset Allocation Shifts
In the years leading up to retirement, it’s a good idea to examine your assets and determine if they’re in the best type of investment vehicles for your income, your age, your career, and your plans for those eventual golden years. A general rule when it comes to planning for your retirement is to engage in riskier investing earlier in your career while your time horizon is longer and have time to recover from market downturns. As you move toward retirement age, it’s a good idea to reallocate your assets toward a less risky profile that may cushion you against market volatility when you may need access to resources the most. However, asset classes can perform differently in recessionary environments. In some instances, bonds may offset volatility in equities, and when held passively, both asset classes may suffer simultaneously. This is where having a skilled advisor actively managing your portfolio can help mitigate the risks of passive investing when you need your money most.
Long-term Wealth Preservation for Retirement Management
None of us knows how long we’re going to live. Since we can’t see into the future, we need to use the variables at hand coupled with accurate data to best project how much money will be needed, and for how long. A financial advisor can help you paint a realistic picture of your post-retirement financial life, but most importantly, they will be there to help you make adjustments and remain dynamic when the unexpected inevitably occurs.
Seek Professional Investment Advice
To engage in the best possible financial planning, it’s worth seeking advice from a professional who can help you diversify in ways that will both protect you and present you with new investment opportunities. Toomey Investment Management, Inc. is an independent Wallingford, Connecticut-based RIA that offers clients expertise in holistic wealth management.
At TIMI, our business model is designed to treat all of our clients equally and fairly. We realized long ago that the financial industry dedicated many resources to capturing money from prospective clients but much less on service and accountability for existing clients. At Wallingford, Connecticut-based TIMI, we listen carefully, keep in touch, and return your calls and communications quickly, so you can count on us. We will work effectively to optimize your financial situation and solve your problems. Call us at 203-949-1710 or visit our website for more information.