Before mapping your retirement financial strategy, it’s important to figure out how much retirement income you may need. You’ll need to consider your housing cost, the length of your retirement, whether you have earned income, your retirement lifestyle, health care and insurance costs, and the rate of inflation. Next, identify all of your potential retirement income sources and review your asset allocation. Remember it’s important to keep your portfolio working for you -- both now and in the future.
When cracking your nest egg, figure out how much you can afford to draw down your retirement assets each year. One traditional approach is to liquidate 5% of your principal each year of retirement. However, your income needs may differ. Which should you tap first: tax deferred or taxable investments? It’s usually advantageous to initially draw down taxable accounts before tapping tax-deferred ones. However, failure to take the required minimum distribution from many tax-deferred accounts after you reach age 72 can result in a tax penalty equal to 50% of the required amount.
A sound retirement financial strategy also includes an effective estate plan, which can help you maximize current income while minimizing taxes for you and your heirs. Consult a qualified financial team to better prepare for this new stage of your life.
