While the results of this spring-cleaning focus won't be as visually satisfying as pulling into a well-organized and clean garage, the long-term implications of your effort may be significantly greater.
It's important to remember that retirement planning spans most of your life -- certainly, from the time you launch your working life until you take your final breath. Stashing money in IRAs or 401(k)s is part of the planning, but there's a lot more to consider. Here are five retirement planning factors that deserve your attention:
1. Taxes. I start here because, as Ben Franklin pointed out, they are a certainty. Whether you're working toward retirement or living in it, taxes are an important consideration. If retirement is in your near future, utilize an appropriate mix of Roth, traditional and taxable accounts, which allows you to reduce your taxes today, build a stream of tax-free income and retain the flexibility to access money when you need it. And during retirement, you want to be strategic about the accounts from which you pull money in order to save tax dollars and extend the sustainability of your portfolio.
2. Longevity. Speaking of sustainability, there's always a risk that you'll outlive your assets. According to the Social Security Administration, the average 65-year-old male can expect to live to 84. As a couple, your life expectancy will extend well beyond that figure. Are your finances prepared? Tools such as immediate annuities, longevity insurance and careful attention to the next two factors I'll discuss are all part of ensuring that you are prepared for the long haul.
3. Savings rate. If you're still working and saving for eventual retirement, are you saving enough? A common rule of thumb is to save 10% for retirement. That may work for a 22-year-old, but probably not for a 52-year-old. My point? There's no time like this spring to work with an online calculator or engage the help of a financial planner to see where you stand. Your savings rate is one of the few "retirement levers" over which you have sole control. Use it liberally.
4. Withdrawal rate. Similarly, retirees have at least a modicum of control over how much money they are pulling from their retirement portfolios. These withdrawals should not be a fire-and-forget proposition. Outsize (or undersize!) market returns, changing expenses and ever-present inflation all need to be accounted for. Is your current program sustainable?
5. Portfolio management. I know that the recent market downturn has made many people, including myself, feel anxious. Just remember, you are in this for the long run. Don't let the downturn sway you from your original investment plans and, above all, DON'T SELL NOW.
During a market downturn, the best thing to do is keep your hands off your investments. Once the dust settles, then you can make adjustments based on what happens. Remember, a major downturn quite often leads to a similar increase in stock prices. Wait it out: You've got lots of time to make up for any losses.
There's no one-size-fits-all approach to address any of these factors, but there is one certainty: All of them should be part of your lifetime of retirement planning.
