The number of choices and “what-ifs” can make deciding what to do with retirement funds daunting for those 55 and older.
“People think, ‘I have a 401(k), I’m set.’ You only have one of the spokes in the wheel,” said Rafi Rodriguez, president of Rodriguez Financial Strategies in Beavercreek.
There is no one-size-fits-all answer on what to do with their retirement funds. Instead, financial planners say they should look at their specific circumstances and plan early in order to have the retirement lifestyle they desire.
The accumulation phase – in which many in this age group remain – is straightforward: The more money saved, the better, Rodriguez said. But distribution can get tricky.
“If you don’t have enough to take out, then something’s got to give, and it’s typically the lifestyle,” said Rodriguez, who specializes in retirement income plans and financial planning for retirees and others.
Now is the time to know where retirement funds will come from, he said. A 401(k)? An IRA? A Roth IRA? Inheritance? If you qualify for Social Security, how will those funds be integrated? Will part-time work be added to your retirement equation?
If retirement savings aren’t yet where they should be, there is still time to adjust, he said. Catch-up contributions are permitted in 401(k) and select other plans for individuals in their 50s.
Adults in this age range should determine if their investments will be able to keep up with their preferred retirement lifestyle, he said. If the answer is no, they may need to invest more or diversify more.
“Budgeting on purpose” can help to align today’s spending with the lifestyle they seek in the future, he said. That means budgeting not only for basic, necessary expenses such as food, shelter and clothing, but also for things that are personally important to them, such as a travel fund or 401(k) fund.
With people often spending 25 years or more in retirement, one of the biggest mistakes they can make is becoming too conservative with their investments, Rodriguez said.
Managing risk – not too much and not too little – is required in order to keep up with inflation, said Dan Johnson, chief executive officer and a wealth adviser at Birchcreek Wealth Management in Miami Township. Those approaching retirement need a portfolio that will last 30 or 40 years.
“That’s a lot of years for inflation to eat away at your purchasing power,” he said.
Johnson suggests interviewing several financial planners to find one that you trust and is a good fit for your needs.
“You want someone who works with folks that have similar situations as you,” he said.
Credit: Knack Video + Photo
Credit: Knack Video + Photo
For example, people in their 50s nowadays are often sandwiched between supporting their aging parents and supporting children or grandchildren who are in college or need other types of financial assistance, he said. Considerations like these can affect their investment approach.
For people who are now 55, Johnson recommends taking a financial inventory. Charting assets, incomes, debts and the expected costs of hobbies, healthcare and other expenses will help them determine the cost of retirement.
“It’s tough to draw the map if you don’t know where you’re starting from,” he said.