Five Questions To Ask As You Near Retirement

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Whenever you see people enjoying a comfortable retirement -- traveling, volunteering, pursuing hobbies, taking up a new career -- you can be pretty sure it didn't happen by accident. In fact, success at retirement is similar to success in just about any endeavor -- you have to prepare for it.

Of course, your strategy could take many different forms. But, as you get close to retirement, you might find it easier to organize your efforts if you ask yourself these five key questions:

  • Where am I today? Shortly before you retire, make a detailed list of your financial assets, such as your bank accounts, investments, IRA, 401(k), etc.

You may want to consider consolidating as many of these accounts as you can with just one company.

This consolidation will help you get a clearer picture of your overall situation, and it may even help you reduce maintenance fees and make it easier to calculate required minimum distributions (RMDs) you might have to take once you reach age 70-1/2.

On the "flip side," you'll want to list all your obligations -- mortgages, home equity credit lines, car loans and other debts.

  • How much income will I need to enjoy the retirement lifestyle I've envisioned?

You'll probably need between 80 percent and 100 percent of your pre-retirement income to maintain your standard of living in retirement. But this is a general rule; your actual needs will depend on what you want to do during retirement.

For instance, if you want to travel extensively, you might need more income than if you choose to stay close to home, volunteering and pursuing hobbies. In any case, try to estimate your annual expenses during retirement, knowing that your plans may change later.

  • How much can I withdraw each year? Your investment portfolio is likely to account for a good percentage of your retirement income. Consequently, you'll want to work with your financial adviser to determine how much you can take out each year without running out of money.

The percentage you withdraw each year will depend on several factors, including your portfolio's rate of return, the age at which you start taking Social Security and the size of the distributions from your 401(k) or other employer-sponsored retirement plan.

  • What portfolio and lifestyle adjustments do I need to make? Once you've determined how much you can realistically withdraw each year, you may need to rebalance your investments to get the right proportion of equities and fixed income.

You also might look beyond your portfolio to see what lifestyle changes you may need to make. For example, you may decide that you wouldn't mind working for an additional year or so to take some pressure off your investments as an income source.

  • How can I stay on course? Over time, your goals, health or income needs may change, so you might have to update your withdrawal and investment strategies. At this stage of your life, you'll want to review your situation with your financial adviser at least once a year.

By finding the answers to these questions, you can go a long way toward enjoying the retirement you deserve.

Ross Hage is a licensed financial adviser with the firm of Edward Jones. For more information, call him at 928 468-2281.

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