With stock prices and valuations at near all-time highs, political uncertainty and the upcoming election now may not be a bad time to evaluate your situation if you are nearing retirement or already retired. Let us face the reality that we are entering uncharted territory in the fact we have been in a bull market since the summer of 2009. And that is a long time for the markets to do nothing but gain in value and price while leaving many of us wondering one simple question. When will this all end and turn into a bear market? And the truth is no one knows what will or will not happen in the markets, but history does have a way of repeating itself. If after reading this post, you have questions seek out the guidance of a Registered Financial Consultant who is a fee-only planner.
One thing that is guaranteed in the markets in today’s supercharged world is that ups and downs will occur. And with that, there will always be market volatility for investors. And these volatile ups and downs are what worries and concerns those who are nearing or in retirement. Without proper planning, you may experience some serious sleepless nights causing you to worry about your future.
Work Longer
One way you can extend your retirement investments and possibly delay Social Security is to work longer than you anticipated. While this is not a valid choice for everyone, some people need to retire and cannot work due to health reasons. Or in many instances, there were corporate changes that made working at an employer impossible such as corporate downsizing. By working longer, you allow your retirement funds to continue to grow with the power of compounding. Also, if you can delay claiming your Social Security benefits past your full retirement age, you can increase your monthly benefits. Even if you only work part-time, you may be able to delay dipping into your retirement accounts to provide for basic living expenses.
Look to Add Guaranteed Income
As I alluded to in the previous section, look at adding to your Social Security benefits by working past your full retirement age. If like me, your full retirement age is 67 and you can work and delay taking your benefits until age 70, you will add an additional 24% to your monthly benefits. Even if you worked a single year past full retirement age, you would get an extra 8% in benefits. That also works in reverse. If you take your benefits before your full retirement age, you can expect about a 6% reduction in your monthly benefits.
If you work past your full retirement age, even part-time, you may be adding to your monthly benefits as Social Security is based on your highest 35 years of wages. And by working later into your career, you should be replacing some early working years where you may not have earned very much with higher wages. This will cause your monthly benefits to increase ensuring you are adding more guaranteed income to your retirement.
If you are lucky and have a pension and Social Security along with investment retirement accounts, you should be in fairly good shape. But even if you do have all of these things, you may still feel like you are vulnerable, and you may want to consider an annuity. Now annuities are extremely complex financial instruments and if you are interested in these products seek out a professional.
Look at Your Spending
If you are retired and have properly prepared, you should be able to see and know exactly where your money is coming from and where it is going. Here is where you must budget properly and live within your means. Now, if you are past age 72, you must make your Required Minimum Distributions or RMD’s from your retirement accounts.
If you are worried about the markets taking a turn and going south, there are some things you can do to protect yourself. One is to sell some of your securities and put the proceeds into a cash equivalent account while the market is up. Here you may want to place two years’ worth of RMD’s in a money market account for your mandatory withdrawals. After all, most bear markets last only a fraction as long as a bull market. This allows you some safety and security by not having you sell at the wrong time and locking in losses in your securities.
Look at Your Taxes
Taxes in retirement can be a tricky ordeal as when you were working. When it comes to retirement accounts, you may or may not have much to work with. As you are required to take your RMD’s, you must take cash out of the account, but if you followed the previous step, you are prepared for this and have made the necessary adjustments. Here is where the type of account will come into play and that is what type of account is it, a ROTH or Traditional account.
I strongly advise my clients to have some saved in each of these types of retirement accounts just for tax planning purposes in their retirement years. As you know, if you make contributions to a traditional retirement account, you get a tax deduction in the year you made the contribution reducing your taxable income. This means when you take the funds out, and they are all taxed as ordinary income at whatever your tax bracket is at the time. If you have a year with more income than normal and still need extra cash, you can dip into a ROTH account and add to your income while not adding to your taxable income as these funds were invested with after-tax dollars.
When it comes to brokerage accounts, tax loss harvesting is a technique that may be implemented. This is you have sold some securities at a gain so why not sell some losing positions to offset the gains. If, however, you have more losses than gains, you can offset income by up to $3,000, and any additional losses can be carried forward and used at $3,000 per year to offset future income.
Retirement is meant to be an exciting point and time in your life. Take some of these steps to ensure you have an enjoyable retirement with minimal stress and sleepless nights. If you require assistance or have any questions, feel free to reach out to me directly or seek the guidance of a fee-only Registered Financial Consultant.
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