10 steps to sound financial planning

Published on Fri, Jul 31, 2009
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Like everyone, you hope for a comfortable retirement. That’s why you should put money away in your 401(k), IRA and any other retirement plan available to you. But once you reach retirement, which financial and investment strategies should you follow to help yourself enjoy the lifestyle you’ve envisioned?

Consider these “top 10” tips:

1. Map out your goals.
You’ll find it helpful to write down your goals for retirement - travel, volunteer, pursue hobbies, etc. Then, list those factors that can affect your ability to achieve those goals. These factors include your income sources (such as your 401(k), IRA, Social Security and savings accounts) and your expenses (such as mortgage, utilities, food and travel). Once you have all this information on paper, you’re on your way toward creating a “blueprint” for your retirement.

2. Plan for a long retirement.
You could spend two, or even three, decades in retirement. Keep this type of longevity in mind when you create investment strategies for your retirement.

3. Don’t spend too much in your early retirement years.
Obviously, you don’t want to outlive your resources. During the first few years of your retirement, don’t go overboard on spending. Also, try to determine how much you can reasonably afford to withdraw from your financial assets.

4. Don’t forget about inflation. If you spend 25 years in retirement, prices could more than double, assuming a three percent annual inflation rate. To make sure you stay ahead of inflation, you’ll probably need at least some growth-oriented investments, such as stocks. Of course, stock prices will always fluctuate so it’s possible to lose money, but by investing in quality stocks, and making them a part of a diversified portfolio, you may be able to help combat inflation.

(Keep in mind, though, that diversification, by itself, cannot guarantee a profit or protect against a loss in a declining market.)

5. Prepare for the unexpected. Unexpected financial issues relating to your family or health can crop up during your retirement years.

To prepare for them, make sure you have set aside adequate “cash” reserves in easily accessible accounts.

6. Don’t “reach” for high yields.
To boost your cash flow, you might think about investing in high-yield bonds or in stocks that promise abnormally high dividends.

Try to resist this temptation - you can find other, more prudent investment strategies for adding to your income during your retirement years.

7. Protect - and insure - your health.
Health-care costs are a major concern for retirees. Take steps, such as exercising and maintaining a healthy diet, to keep yourself in good shape. At the same time, strive to maintain adequate health insurance.

8. Get help with your taxes.
Many of the withdrawals from your retirement accounts will be considered taxable income. To manage your tax situation effectively, consult with a tax advisor.

9. Define your legacy.
Work with a qualified legal advisor to make sure your estate plans and the appropriate documents and arrangements - beneficiaries, will, living trust, power of attorney, etc. - are up to date.

10. Get a “financial checkup” each year.
Consult with your financial advisor at least once a year to make sure your investment strategies are still on track.
As you near retirement, or if you’ve just retired, put these suggestions to work. It will take some time - but it’s worth the effort.

This article was written by Edward Jones for use by your local Edward Jones Financial Advisor. Edward Jones, its financial advisors and employees do not provide tax or legal advice.

You should consult with a qualified tax or legal professional for advice on your specific situation.