Monday, July 27, 2015
Retirement preparation is essential to the success of your “next chapter.” If you’re unsure of where to begin, independent financial advisory firm The Mather Group advises the following:1. Develop a realistic monthly budget for retirement. Track your expenses for up to a year to get an accurate picture of your financial needs. Account for one-time expenses, such as that new furnace or roof you may soon need, and note month-to-month fluctuations in expenses. Plan for higher inflation rates for certain types of spending, such as health care and college expenses.
2. Develop a comprehensive financial plan. Take inventory of your assets – the equity in your home and all investments (401K, stocks, savings, life insurance, etc.). Note all projected retirement income streams, such as pensions and Social Security. Your financial planner will complete your plan and should stress-test it using Monte Carlo simulations to see how it performs under changing market conditions.
3. Maintain an appropriately diversified portfolio. You should be invested in a combination of fixed income, U.S. stocks, and foreign equities, which is the best way to protect your portfolio from a possible correction. Low-cost indexes such as ETFs are a better option than high-cost mutual funds, which typically add one percent in additional management costs.
4. Create a cash flow strategy to minimize taxes. A Certified Public Accountant (CPA) with specialized knowledge of tax code pertaining to retirement assets can help determine how you should tap your savings to minimize income taxes throughout your retirement.
Source: The Mather Group
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