Financial Assessment and Navigation: A Professional Insight into Adjusting Your Financial Navigation System
Realigning Your Finances for Retirement: High-Impact Steps to Secure Your Financial Well-being
As you approach retirement, it's essential to review and realign your financial plan to ensure a secure and optimized future. Kiplinger Personal Finance offers several high-impact steps to help you achieve this.
1. Update Your Holistic Net Worth
Start by creating a centralized list of all your assets and liabilities. This will help you identify if your portfolio has drifted from your targets, particularly focusing on holdings that deviate more than 5%-10% from your planned allocations, considering your time horizon and risk tolerance near retirement.
2. Use Your Tax Return as a Planning Roadmap
Your tax return can serve as a valuable tool for identifying missed opportunities, adjusting withholding or estimated payments, maximizing retirement contributions, and considering tax strategies like Roth conversions if your income is expected to be lower, which can lock in future tax benefits.
3. Apply a Bucket Strategy and the “120 minus your age” Rule
Split your investments into buckets, such as short-term conservative funds for 1–2 years of expenses and more aggressive investments for long-term growth. This strategy can help manage sequence-of-returns risk and align portfolio risk with both your goals and comfort level.
4. Redefine Retirement with Purpose
Clarify what retirement means to you personally. Whether it's travel, family, work, or giving back, a clear understanding of your goals will guide more intentional and customized planning.
5. Stress-Test Your Portfolio Scenario
Work with a financial advisor to understand how your portfolio would perform through market volatility over a 30-year retirement horizon. Simulating a 15% market drop just after retirement, for example, can help ensure preparedness and plan adjustments.
6. Recalibrate Your Plan Purposefully
Don't just rebalance for balance's sake; align adjustments with your evolving goals and risk tolerance as retirement approaches.
To further optimize your financial plan, consider the following steps:
- Coordinate with your adviser to pair required minimum distributions (RMDs), if applicable, or appreciated stock donations to avoid capital gains.
- Schedule a formal investment review with your adviser to assess asset allocation, concentrated positions, and tax-loss harvesting opportunities.
- If paying for a dependent's medical bills might qualify under the medical expense deduction or contribute toward gift tax exemptions, evaluate the possibility.
- Regularly reviewing disability coverage, umbrella liability, long-term care, homeowners' or auto policies, and estate documents is necessary as your lifestyle and net worth evolve.
- If you've incurred significant out-of-pocket health care costs or expect to in the second half of the year, consider prepaying for known elective procedures, dental work, or long-term care premiums.
- To realign your finances, it is recommended to contribute a larger sum now to a donor-advised fund (DAF) to take advantage of the deduction this year but grant the funds to charities over time.
Remember, your financial life isn't just a series of accounts—it is a living, breathing system that should evolve with you. Take a step back, reflect, and recenter your plan around what matters most.
The Kiplinger Building Wealth program offers expert advice on retirement, estate planning, and tax strategies from financial advisers and business owners. By following these steps, you can secure and optimize your financial well-being as you enter retirement.
- When aligning your retirement finances, consider using the "120 minus your age" rule to split your investments into short-term and long-term buckets, helping manage sequence-of-returns risk.
- To further optimize your personal-finance plan during retirement, work with a financial advisor to coordinate tax strategies like appreciated stock donations or RMDs to avoid unnecessary capital gains.
