Many retirees today face the prospect of a retirement that, could conceivably last for 30 or more years. Ideally, planning for retirement would begin as soon as a person starts working, and would extend throughout the working years, adapting to changes and shifting priorities, as the person’s life and needs unfold.
However, retirement planning, doesn’t stop at retirement.
Instead, the focus shifts from accumulating a nest egg, to how best to spend and preserve assets, to ensure they will last a lifetime.
The Goals of Retirement Income Planning
By the time your retirement approaches, chances are, you have worked long and hard to finally reach this point in your life. Whether you will be able to live the life you want, after retirement, depends on how well you have planned, saved, and invested for your long-term financial security.
It also depends on the strategy you choose to distribute and preserve money you have saved for retirement.
The information I am sharing, is designed to help retirees meet 6 important goals. These are:
1. ensuring continued growth of assets
2. generating lifetime income
3. protecting savings while simultaneously making withdrawals from those savings
4. minimizing taxes
5. covering health care expenses
6. leaving a legacy for heirs and beneficiaries
Let’s take a brief look at each of these goals.
1. Ensuring Continued Asset Growth
While a retiree’s first thought may be to move savings into conservative investments once retirement arrives, ensuring the continued growth of assets, is critically important. This is because, of the always present risk of inflation. Even an inflation rate as low as 3 percent can cut a retiree’s purchasing power by half in about 22 years.
The Importance of Diversification
While some retirees may be concerned about investment risk, once they retire, such risk can be managed through diversification. Essentially, diversification is simply another way of saying not to put all your eggs in one basket.
It entails buying a mix of stocks, bonds, and investment funds that suit an investor’s objectives.
Remember, different asset classes, offer varying potential for growth—and different levels of risk.
For example, stock funds, while offering the greatest potential for long-term growth, also tend to undergo the greatest short-term price fluctuations. On the other end, short-term investments, such as money market funds, tend to offer relatively low returns, but are very safe.
To ensure continued growth while reducing overall risk, retirees can spread savings among investments with different levels and types of risk and return potential. In other words, retirees should diversify assets, by spreading their savings among stocks, bonds, and money market/stable value investments. This can also help ensure, that assets will grow at a rate that keeps up with or exceeds inflation.