Retiring? Take control of your assets

December 7th, 2012 Allan Walz

This material was prepared for Allan Walz, LPL Financial Advisor, use.

After years of saving and investing, you can finally see the big day – retirement. But before kicking back, you still need to address a few matters. Decisions made now could make the difference between your money outlasting you or vice versa.

Calculating your retirement needs

First, figure out how much income you may need. When retirement was years away, this exercise may have involved a lot of estimates. Now, you can be more accurate. Consider the following factors:

  • Your home base – Do you intend to remain in your current home? If so, when will your mortgage be paid? Will you sell your current home for one of lesser value, or “trade up?”
  • The length of your retirement – The average 65-year-old man can expect to live about 17 more years; the average 65-year-old woman, 20 more years, according to the National Center for Health Statistics. Have you accounted for a retirement of 20 or more years?
  • Earned income – The Bureau of Labor Statistics estimates that by 2015, 10 percent of women and 20 percent of men aged 65 or older will still be employed. If you continue to work, how much might you earn?
  • Your retirement lifestyle – Your lifestyle will help determine how much preretirement income you’ll need to support yourself. A typical guideline is 60 percent to 80 percent, but if you want to take luxury cruises or start a business, you may well need 100 percent or more.
  • Health care costs and insurance – Many retirees underestimate health care costs. Most Americans are not eligible for Medicare until age 65, but Medicare doesn’t cover everything. You can purchase Medigap supplemental health insurance to cover some of the extras, but even Medigap insurance does not pay for long-term custodial care, eyeglasses, hearing aids, dental care, private-duty nursing or unlimited prescription drugs. For more on Medicare and health insurance, visit
  • Inflation – Although the inflation rate can be relatively tame, it can also surge. It’s a good idea to tack on an additional 4 percent each year to help compensate for inflation.

Running the numbers

The next step is to identify all of your potential income sources, including Social Security, pensions and personal investments. Don’t overlook cash-value life insurance policies, income from trusts, real estate and the equity in your home.

Also review your asset allocation – how you divide your portfolio among stocks, bonds and cash. You may live in retirement for a long time, so try to keep your portfolio working for you –both now and in the future. A financial advisor can help you determine an appropriate asset allocation.

A new phase of financial planning

Once you’ve assessed your needs and income sources, it’s time to look at cracking that nest egg you’ve built up. First, determine a prudent withdrawal rate. A common approach is to liquidate 5 percent of your principal each year of retirement; however, your income needs may differ.

Next, you’ll need to decide when to tap into tax-deferred and taxable investments.

The advantage of holding on to tax-deferred investments (employer-sponsored retirement plan assets, IRAs and annuities) is that they compound on a before-tax basis and therefore have greater earning potential than their taxable counterparts.1

However, earnings and deductible contributions in tax-deferred accounts are subject to income tax upon withdrawal – a tax that can be as high as 35 percent at the federal level. In contrast, long-term capital gains from the sale of taxable investments are taxed at a maximum of 15 percent. The key to managing taxes is to determine the best strategy given your income needs and tax bracket.

It’s easy to become overwhelmed by all the financial decisions that you must make at retirement. The most important part of the process is to consult a qualified financial professional, a tax advisor and an estate-planning attorney to make sure that you’re prepared for this new – and exciting – stage of your life.

1Withdrawals from tax-deferred accounts prior to age 59½ are taxable and may be subject to a 10% penalty tax. Neither fixed nor variable annuities are insured by the Federal Deposit Insurance Corp., and they are not deposits of or endorsed or guaranteed by any bank. Withdrawals from annuities may result in surrender charges.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

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Allan Walz

About the author

Allan Walz is a LPL Financial Advisor at MidWestOne Bank. He specializes in investments and retirement planning.

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