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Retirement Asset Management: Top 10 Tips

Posted by Jim Kantowski, CFP®, CPA on September 17, 2020

Retirement Asset Management: Top 10 Tips

Retirement planning is a big step, and it looks different for everyone. If you’re considering the do-it-yourself approach to retirement asset management, you first need to understand the various stages of the process so you can tackle it like an expert.

In this article, we’ll share our top 10 retirement asset management tips to help you start off on the right foot. (And remember—we’re here to help if you need it!)

How To Manage Your Investments Yourself: 10 Tips

1. Start early.

The sooner you begin retirement planning, the more time you have for your investment returns to compound. This means you’ll earn returns (interest, dividends, and capital appreciation) on the returns you’ve already accumulated, which can greatly increase your wealth in the long term. In contrast, the later you start the retirement asset management process, the more money you’ll need to save to ensure you’ll have enough to retire.

The U.S. Securities and Exchange Commission’s Compound Interest Calculator is a helpful tool to see how much your wealth can grow over a given time period. You might be surprised to know that if you saved just $200 a month over 30 years and earned 7% compounded, your wealth could amount to $226,709 at the end of that 30 years. Alternatively, if you waited 10 years longer to start investing the same $200 a month, you’d have $98,389.

2. Define your goals.

Goals help guide plans to fruition, and retirement asset management is no different. Whether your objective is to retire early or to grow your wealth for future generations, it’s essential to outline your goals so that you can craft the right plan to help you achieve them.

3. Gather information from multiple sources.

There’s no shortage of information about retirement asset management available online. Some of our favorite go-to sources include nerdwallet.com and mint.com. In your research, you’ll likely come across many articles with different points of view. The key is to sift through the noise, analyze the information, and apply it to your specific financial situation.

4. Save money in the right retirement accounts.

Once you’ve defined your goals and gathered information on how to manage your investments yourself, you can start saving money in a variety of retirement accounts such as Individual Retirement Accounts (IRAs), Roth IRAs, and Employer-Sponsored Plans that will help you grow your wealth by shrinking your tax bill. Picking the right accounts for your personal situation will give you the most bang for your buck.

Ensure you understand the differences between accounts, and that you know which accounts allow you to defer tax until you withdraw your money, versus which ones enable you to increase your wealth tax-free. If possible, take advantage of employer benefit plans that include company matches or contributions, stock purchase plans that offer discounts on company stock, and deferred compensation plans that allow you to defer the tax on your compensation above the typical limits.

5. Anticipate future expenses.

You need to be prepared for future costs such as healthcare to create a retirement plan that serves you now and in the future. Spending tends to be the biggest factor in retirement success, so you need to have a good understanding of your projected expenses. Underestimating this figure could lead to a shortfall of money in your retirement.

For example, if you decide to retire before you start receiving Medicare benefits, you may have higher expenses from age 55 to 65, so you’ll need to account for those costs in your retirement asset management plan. You’ll also need to have some non-retirement assets to fund your early years, since IRA distributions (the amount of money you can withdraw from your IRA) are typically not penalty-free until age 59 ½.

Make sure you leave yourself enough room to live the life you want to live, so that if significant travel or a second home are in the picture, you can cover the costs.

6. Minimize your taxes.

Use tax-efficient accounts such as IRAs, Roth IRAs, Employer-Sponsored Plans, and Health Savings Accounts to help reduce the amount of money you give to the government each year. Research the benefits of these accounts and choose the ones that meet your needs.

You should also aim to include various kinds of investments in all of your accounts. Having multiple accounts to withdraw assets from in retirement will give you flexibility to reduce taxes and maximize your wealth. For example, if you retire at age 62 and don’t take Social Security until age 70, you may have a window of low tax years, which could provide the opportunity to convert traditional IRA assets to Roth IRAs, enabling your investments to grow tax-free. Being conscious of how you use your money in retirement can lead to big savings.

7. Watch for law changes.

Tax law changes happen frequently (it’s even tough for the pros to keep up!), and they affect how much money you can save in your retirement accounts.

For example, the SECURE Act was recently passed, removing the age limit for IRA holders to make account contributions if they continue to work. The act also increased the age for required minimum distributions (the age you must start withdrawing money from your IRA if you’re not working) from 70 ½ to 72.

In another instance, the CARES Act eliminated the need to take required minimum distributions for 2020, which provided some unique financial planning opportunities. Ensure you stay up to date on this type of information to take advantage of the benefits.

8. Understand your risk level.

It’s crucial to invest for your risk tolerance level and your age. If you’re young, it’s wise to invest more aggressively because this can lead to a higher rate of return on your money and greater compounded returns. In contrast, if you’re close to retirement, it may be best to consider a more conservative investment strategy that will reduce the impact of big stock market swings.

9. Diversify your portfolio.

Never put all your investment eggs in one basket. A diversified portfolio can help minimize your risk over time. In addition to using different retirement accounts and tax-efficient accounts (covered in tips 4 and 6), you should include U.S., international, and other types of asset classes in your portfolio.

10. Adjust your plan as needed.

Update your retirement asset management plan regularly based on your life circumstances as they evolve. Check in with yourself to evaluate where you are in relation to your financial goals and whether your plan is still on track to help you get there.

Get Expert Retirement Asset Management Advice

The do-it-yourself approach to retirement planning isn’t for everyone. If you’re looking for guidance from a seasoned retirement asset management professional, Bay Point Wealth can help. We’ll work with you to ensure you’ll never have to wonder if you’ll have enough money to retire (we’ll make sure the answer is “yes”!).

Book a call with a Bay Point Wealth advisor.

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Topics: Retirement Planning