Financial planning vital before, after retirement

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So many financial articles are written pertaining to how to save and invest before retirement. However, seldom do you see information on how you should manage your investments once you do retire. |ret||ret||tab|

Retirement is a day that many of us look forward to. But once that day arrives, the reality of not receiving a paycheck becomes all too apparent. We now have to face the fact that we will rely on our retirement income to take care of our day-to-day expenses. |ret||ret||tab|

If we plan wisely we'll have a nice nest egg to work with. If not, we will be forced to take post-retirement jobs.|ret||ret||tab|

The first step to financial success is to take the appropriate action years before retirement age hits. |ret||ret||tab|

But once you are retired, the key is selecting the right investments to provide the income to fund the lifestyle to which you are accustomed. |ret||ret||tab|

Just how much income is required to retire? Most financial planners agree that a good rule of thumb is to count on 75 percent to 80 percent of your pre-retirement income. |ret||ret||tab|

Most planners advise planning on a full 100 percent of what you are accustomed to for the first year of retirement. The full 100 percent is realistic because this new stage of life has not been experienced and you may incur some additional expenses.|ret||ret||tab|

Income from Social Security and/or pensions will provide you with part of the dollars needed during retirement. The other portion will come from your own investments that you have accumulated through the years.|ret||ret||tab|

These investments will provide some additional cash flow in several ways: dividend and interest, recognized capital gains (mutual fund distribution), and unrecognized gains (stock, bonds or mutual funds which you choose to sell to raise cash). How to access this variety of assets and how much to take is the next consideration.|ret||ret||tab|

Most people who are used to receiving a salary check during their working years are usually most comfortable if they can receive regular monthly deposits in their checking accounts during retirement. |ret||ret||tab|

It works quite well to establish an account, usually a money market fund, which collects cash flow from your investments. These dollars can be transferred on a systematic basis to your checking account. |ret||ret||tab|

It is also recommended that a three-month cash reserve be kept available, also in a money market account. This cash reserve is available to cover any expenses so that selling investments does not have to take place at an inopportune time.|ret||ret||tab|

After your cash reserve has been established, you'll want to look at the various income sources you expect to receive and the taxes you will pay on the income. |ret||ret||tab|

Usually, before you reach age 70 1/2, you are required to take withdrawals from your retirement accounts. |ret||ret||tab|

You may want to consider spending the income/capital gains from assets in your own name first. By taking this approach, assets can accumulate in your retirement fund faster than they would outside the retirement fund.|ret||ret||tab|

Let's say the income from your assets is not sufficient to meet your cash flow needs. |ret||ret||tab|

At this point, using recognized capital gains would be the next logical source. If you own mutual funds in your own name, you know that most of them declare and distribute capital gains once or twice a year. |ret||ret||tab|

This is taxable income to you in the year you were paid, whether you reinvest the gains or not. Since you have to pay tax on them anyway, it may be wise to deposit these distributions in a money market fund. |ret||ret||tab|

The next source of cash would be selling existing assets. This needs to be well-planned and -timed to take advantage of price volatility in the market.|ret||ret||tab|

Most of us have grown up with the theory of never spending the principal. In this day and age, when most stocks pay low dividends but have increased considerably in value, you may want to consider taking some of your profits to supplement your income. |ret||ret||tab|

As you know, if the stock has been held more than one year, the gain is considered long-term and is taxed at the maximum capital gains rate of 20 percent, instead of at your personal income tax rate which is often higher than the capital gains rate.|ret||ret||tab|

Upon reaching the age of 70 1/2, many people are inclined to believe their investments should be put into a conservative portfolio of all bonds. Typically this type of investment would be paying 6 percent or more. |ret||ret||tab|

However, instead of taking this approach, we would recommend looking at total return. If 40 percent of your assets were in bonds, then you would set up a withdrawal program of 6 percent of the retirement assets. The other 60 percent of your portfolio would still be working for you in stock appreciation. |ret||ret||tab|

During the post retirement period, you'll find the advice of a financial planner particularly helpful so you can make informed decisions. |ret||ret||tab|

Each person's situation is different, therefore it is imperative that you estimate your expenses, decide which sources of income to access, as well as when and how to access them based on your situation. |ret||ret||tab|

Once this is done, monitoring and making appropriate adjustments will make your golden years just that ... golden.|ret||ret||tab|

|bold_on|(Gail Noggle is a vice president and trust officer at Springfield Trust Company.)|ret||ret||tab|

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