Plan Well For A Satisfying Retirement
Kim Ciccarelli Kantor | Naples Daily News | July 24, 2013
That magic time in your life might already have come for you; that time when you can proudly call yourself a “retiree.”
This is a time for a sense of freedom to do what you wish with your day and a change from your normal habits of accumulating assets to now preserving and enjoying them. As a retiree, you have an overriding concern to be sure your money lasts as long as you do.
You will face a task that might be more difficult than many challenges previously experienced in your career. Your success will be in planning how to use your portfolio without using it up.
Following are tips for planning your cash flow:
Review your Expenses
Determine the appropriate income you must have to pay necessary expenses to maintain your lifestyle. Your expenses can be categorized into generally three areas: 1) necessary living expenses; 2) travel or leisure activities; and 3) charitable and/or family gifts. Be sure you are realistic in totaling your necessary living expenses. It may be helpful to prepare a spreadsheet to ensure you don’t forget to include all your monthly, quarterly and onetime annual expenses such as property taxes and insurance, auto insurance, life insurance and golf club membership dues, to name a few.
Design your portfolio
Select the appropriate balance of stocks, bonds, and cash to keep within your portfolio. Understand your time horizon and your tolerance for volatility. Based on the Morningstar Index return guide (1), stocks historically provide more return over time than bonds or cash, but not without any down years. Your assets will need to support increased living needs over time and should be properly allocated between equities and fixed instruments.
Organize your cash flow
Determine how much you can afford to withdraw each year from your portfolio, and the timing of the withdrawals. This will help you plan ahead and prepare for the most effective way to live off your portfolio. I have found over the years a realistic percentage of assets to take each year might be around 4%. Taking less than the expected average annual return can provide a cushion to make up for any negative return years. Of course, the appropriate percentage to withdraw from the portfolio will be directly related to the type of investments you hold. In retirement, cash flow should be related to the total return on your invested assets (dividends, interest, and appreciation).
Plan for taxes
Your tax bill will have an effect on how you organize your cash flow. If a pension or supplemental income is providing a major source of your retirement cash flow, then your portfolio might be designed to minimize taxable income. When calculating your net cash flow, be sure to account for the after-tax results.
For many, retirement means freedom of choice. Be sure to study your financial choices, meet with your financial advisor to discuss your options and carefully design your retirement picture.
