Sleep in Peace
How to Sleep Better in the Retirement Years
We all know there are situations were bad things can happen to good people who have work hard and saved all their lives. All the wonderful plans in the world can go south if you just happen to retire just as something takes a turn for the worse.
Let’s say you invest heavily in stocks should have plenty for retirement unless you get wiped out by a drastic market crash. On the other hand, if you load up on bonds and fixed annuities you won’t have to worry about a stock market crash, but you could see your standard of living eroded by inflation. So what to do?
The primary thing to always keep in mind is diversification. This is always the key to reducing risk. Here are six ways you can avoid financial disaster durning retirement:
1. Diversify your Stocks to Minimize Potential Loss of Retirement Income
If you want your retirement income to grow along with inflation, your best strategy is to keep around 50% of your portfolio in a mix of large-company stocks, small company stocks, and foreign stock mutual funds. While keeping 50% in stocks may seem a little risky, keep in mind that over the course of a 20-30 year retirement, inflation can do a lot of damage, so the smart move is to hedge your bet with long-run growth that stocks offer.
2. Stay Flexible Each Year of your Retirement
No matter how well or diversified your portfolio is, you could still get hurt financially if the stock and bond market go in the tank. Should that happen be prepared to limit your spending. Some financial advisers recommend that in the first dozen years of retirement, when a large market crash can be the most hurtful, limit your annual withdrawals to 5% of your portfolio’s beginning of the year value. By adopting the 5% rule, you will be automatically trimming down if your portfolio goes down.
3. Keep Access to Cash during Retirement
Keep 25% of your nest egg or portfolio in money market funds and short-term bond funds. Then if the stock market drops significantly in a short-term decline, you won’t have to sell your shares at a substantially lower price to liquidate cash to pay your bills.
4. Delay Taking Social Security to Receive Full Retirement Benefits unless your financial advisor or tax planner says otherwise.
Increase your income further by delaying the start of your social security benefits until full retirement age. This locks in a higher monthly check from the federal government.
5. Helping to Ensure Retirement Success
You will want to talk to your stock broker or financial advisor about the following:
If you have 50% in stocks, and 25% in conservative investments take the other 25% and buy a mix of high quality bonds, inflation indexed treasury bonds, high yield junk bonds and foreign bonds. Then, channel the interest payments into your cash reserves. That is one approach. Another is to put all or part of this 25% into an immediate fixed annuity that pays lifetime income. That way even if you outlive your other savings, you know you will get a monthly check from the insurance company.
6. Provide and Protect your Financial Safety Net
Should things go bad and you have cut spending, downsized your life and still need cash, consider a reverse mortgage to begin taking a portion of the equity out of your home each year to help you meet expenses. For more information on the reverse mortgage contact a competent Mortgage
Consultant and educate yourself at www.reversemortgages.org on the net. Find the experts and learn all you can. Don’t take all your advice from a couple Internet Millionare Geeks like us. What do we know anyway?