Managing Your Retirement FinancesRetirement is a journey, not a destination. It's something you're creating – and enjoying – with the decisions you make every day.
Retirement planning doesn't stop when you retire. Even if you've followed a plan to save for retirement, it's equally important to have a plan that is designed to help meet your needs throughout your retirement.
Your in-retirement plan should include your income plan – how you pay yourself in retirement – and your estate plan.
Generate income while making your money lastWhether you are already retired or still working, at this stage of your life your tolerance for risk has changed. You need to protect the value of your retirement savings, yet grow them enough to both outpace inflation and to provide enough income to cover your living expenses.
This can become a balancing act between drawing down your savings too quickly and being left with little to live on in your 80s or 90s, or the opposite scenario of spending your income too slowly and needlessly crimping your standard of living.
How do you ensure you're not taking on too much risk in the market versus too little risk to still grow your assets?
One approach is to hold income-producing securities. You periodically withdraw the interest and dividends to live on. Immediate annuities, bond or CD ladders, and preferred stocks are typical income-oriented investments. Another approach involves maintaining a primarily growth-oriented posture while periodically selling a portion of your appreciated stocks to generate cash. (Selling stocks could trigger taxes, so you should discuss this strategy with your tax advisor first.) Of course, you must be comfortable with the risk of each investment.
It is important to have a plan that reflects both realistic expectations and your own comfort level. For an overview of what to withdraw, from where to withdraw it, and when to withdraw it, see Creating Your Retirement Paycheck.
Withdrawal rates: Several factors can play an important role when calculating how much of your retirement money you will spend each year, referred to as your withdrawal rate.
While you have little control over market volatility and inflation, you can help protect your retirement security by wisely managing one fact that you can control: your withdrawal rate. By withdrawing your income at a conservative rate early in your retirement, you may dramatically prolong the life of your retirement savings – and you may even be able to raise your withdrawal rate later in retirement.
Consider your Required Minimum Distributions: When you turn 70½, by April 1 of the following year, you must begin to take what are called required minimum distributions (RMDs) from your traditional IRAs and, unless you are still working, your employer's retirement plan. This requirement needs to be factored into your income plan.
Simplify: Properly managing your asset allocation and withdrawal strategy can get complicated. If you haven't already, consider consolidating your retirement accounts to ensure your investment strategy is coordinated and to help simplify the management of your portfolio and calculation of your required minimum distributions.
Reconcile your budget and cash flow: Creating and following a realistic budget can be essential when you're retired. It helps ensure your money lasts as long as you'll need it.
Estate PlanningDesign a plan that can protect you, your spouse, and your heirs no matter what life brings. The benefits of a sound estate plan include:
If estate taxes are likely to cut significantly into the amount you're able to leave heirs, now might be the time to maximize tax-reducing gift strategies if you haven't already.
Some helpful tax-reducing strategies:
Mapping your route through retirementYou are enjoying a new phase of life. You may be back in school, traveling or spending more time with family. You need to make sure your retirement plan allows you to spend time on the things that are most important to you. Wells Fargo Advantage Funds® can work with you to identify issues and risks, develop strategies to address gaps, refine and update your retirement plan and help you achieve your dreams and goals. To talk to a Wells Fargo Advantage Funds Investment Specialist, call