Retirement

Five Essential Financial Tasks Retirees Can Complete For The New Year

The beginning of the new year is a good time for pre-retirees and retirees to reflect on their goals and recent events that may have affected them. You’ll feel better if you make sure you’re still on track to be financially secure for the rest of your life, no matter how long you live and no matter what happens in the stock and bond markets.

Here are five tasks that will help you examine your retirement finances and make any changes that are necessary. You don’t need to complete all of them—just choose the tasks that resonate with you.

Task #1: Review your strategy for withdrawing money from your savings to generate your retirement paycheck.

If you use systematic withdrawals from invested savings to generate a regular retirement paycheck, you’ll want to revisit the amount you withdraw during 2023 to reflect the recent declines in the stock and bond markets. Research I’ve conducted at the Stanford Center on Longevity demonstrates that the best practice is to reduce the amount of your withdrawals when your assets drop. This helps address “sequence-of-returns risk”—when you withdraw so much when assets are depressed that you don’t have sufficient assets to rebuild when markets bounce back.

One way to adjust your annual withdrawal amount is to apply a percentage to your remaining assets at the beginning of each year. The IRS required minimum distribution is one such method, although applying a fixed percentage such as 4% can also work. Another conservative method is to only withdraw income from interest and dividends.

Task #2: Revisit your investment strategy.

If you’ve been very nervous about the recent stock market volatility and decreases in any bonds or bond funds that you own, you may want to revisit your investment strategy. One way to reduce stress is to have sufficient income from guaranteed sources that don’t drop when stocks or bonds drop. Examples of such income include Social Security, pensions, low-cost income annuities, interest income from bonds, cashflow from a bond ladder, and withdrawals from a reverse mortgage. If you can cover your basic living expenses with these sources of retirement income, you won’t need to worry so much about running out of money and needing to move in with your kids.

Task #3: Simplify your investments and sources of retirement income.

As you age into your later years, you may have less patience or ability to monitor several sources of retirement income and savings. You can still achieve most of the diversification you need with just a handful of funds and sources of retirement income. One way to “kill two birds with one stone” is to use some of your retirement savings to buy a low-cost income annuity, which also protects against volatility with your investments (Task #2).

Task #4: Inventory your finances.

If you haven’t already done so, create a formal inventory of all your living expenses, debts, savings, and sources of income so they’re documented. This inventory can help you identify areas where you might be able to simplify your financial life. It’s also an important step to prepare transitioning the management of your finances to a financial advocate to help prevent financial losses in your later years due to making mistakes or becoming a victim of fraud or exploitation (see Task #5).

Below is a link to Step Two of the Thinking Ahead Roadmap that will help remind you of the items to include in your inventory. It also includes a handy spreadsheet that you can download to create your inventory.

Task #5: Make progress on planning for when you need to transition the management of your finances.

The Thinking Ahead Roadmap outlines six steps to take that will help protect you against financial losses if you become unable to manage your finances. If you haven’t already done so, take Step One, which is to select a financial advocate you can trust to help you manage your finances.

If you’ve already completed Step One, then review the other steps that you still need to complete. The Thinking Ahead Roadmap is actually a journey that you’ll take throughout your life—it’s not a “one and done” task.

Make time to complete the necessary steps that can help you “live long and prosper.”

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