BIG QUESTIONS

Putting it together – how do I start my plan?

The following practical steps can provide the foundation to creating a retirement plan, helping position you for retirement readiness.

1

Audit expenses and determine projected retirement monthly spending gap

Mapping out expected expenses and comparing them to guaranteed sources of income such as Social Security is one of the easiest ways to get a realistic picture of your needs before you retire. This exercise can help determine how much you can expect to receive and what you may need to withdraw from investments each month.

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2

Review your risk profile and beware of investing solely for income

Many financial professionals agree that as investors approach retirement, they should evaluate their asset allocation to potentially reduce equity exposure and risk.

For many people, this means reallocating to a less-risky investment such as bonds. These are a popular choice because they can potentially reduce risk and generate income. Beware of investing solely for income, however, because not all bonds are created equal. In a low interest rate environment, it may be difficult to generate meaningful cash flow.

In an attempt to generate high levels of income, or yield, the worst-case scenario would be to assume risks that are neither understood nor appropriate. As a result, declining market values can eclipse income received, leaving investors with an overall net loss. Refer to The Three Tiers of Retirement Income to help you get started creating an income strategy.

3

Review asset location

Next, audit the types of investment accounts in which money is invested and how much is in each account. These types of accounts might include: 401(k) plan, traditional IRA, Roth IRA, pension, annuity, taxable accounts, etc. Auditing the types of accounts and how much is invested in each will assist you in creating a tax-aware cash flow strategy.

Next, audit the types of investment accounts in which money is invested and how much is in each account. These types of accounts might include: 401(k) plan, traditional IRA, Roth IRA, pension, annuity, taxable accounts, etc. Auditing the types of accounts and how much is invested in each will assist you in creating a tax-aware cash flow strategy.

4

Diversify assets, consolidate cash flow

One common misconception is that consolidating investments within one financial institution will simplify retirement planning. While it may be convenient, make sure to understand how it will affect your investment returns. When considering consolidating investments within a single institution, especially if looking to roll over a 401(k), take a hard look at the fees and expenses. For example, transferring an investment to another institution may require a change that could mean a higher expense ratio. One way to consolidate cash flow is to set up banking information on each investment account to make deposits to a single checking account or a Personal Pension Account (PPA) to pay bills from a single source.

To help cover gaps in Medicare, consider:

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5

Build your retirement team

When planning for retirement, one of the most critical and yet overlooked steps is building a support team during retirement.

For many people, this means reallocating to a less-risky investment such as bonds. These are a popular choice because they can potentially reduce risk and generate income. Beware of investing solely for income, however, because not all bonds are created equal. In a low interest rate environment, it may be difficult to generate meaningful cash flow.

In an attempt to generate high levels of income, or yield, the worst-case scenario would be to assume risks that are neither understood nor appropriate. As a result, declining market values can eclipse income received, leaving investors with an overall net loss. Refer to The Three Tiers of Retirement Income to help you get started creating an income strategy.

Consider Recruiting the Following Team Members to Help Build Your Plan:

  • Financial advisor to assist with managing the investment transition into retirement
  • Tax professional for tax planning and assisting with a tax-aware withdrawal strategy
  • Legal counsel for estate planning purposes and help drafting power of attorney documents
  • Communicate your wealth-transfer plans with key family members to keep them informed on your needs, wants and wishes during retirement.

NEXT STEPS

For additional information, please contact your Janus Henderson representative.

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