You placed a certain amount of money into an account and when you retired you started receiving checks. A portion of your paycheck, often along with a little incentive from your company, goes into an account and you — the person with little investment knowledge — are charged with managing the most important financial vehicle you have.
Whatever the size of your nest egg, retirement will likely mean big changes in your financial life. Sources of income can shift, as can expenses. And financial priorities often change as you move from saving for retirement to generating income from your hard-earned retirement savings.
The clean-slate approach, he says, has the potential to make dealing with finances easier, more efficient, and cheaper if you can consolidate accounts and mitigate fees. Managing your retirement income To start, consider the ways that retirement can change cash flow.
Your weekly or biweekly paycheck may be replaced by income from a variety of sources, including Social Security benefits, pension distributions, and annuity payments. Some retirees may even generate income from part-time employment or sales of assets.
All of this means that money is arriving in varying amounts on very different schedules—most likely in the form of a check. To manage these income sources efficiently, you can set up direct deposit services, or use a financial institution that offers remote deposit—meaning you can log on to your computer and scan or snap a photo of a check with a smartphone.
Spending patterns will also likely change, reflecting both your new lifestyle and shifting financial responsibilities. When you retire, often nothing is being withheld for state and federal income taxes, so you may be responsible for any quarterly estimated taxes. Likewise, most retirees generally have to pay health care and other insurance premiums directly to the insurance carrier s.
Some retirees may also find they are traveling more or living in dual residences. All these situations can make monthly bill paying even more complicated. This may include taking advantage of everyday financial management tools over the phone, on the Web, or via a mobile device.
These days, technology makes it easy for people to effectively manage their regular financial transactions from anywhere.
Doing so can eliminate worries about paying the mortgage bill, no matter where you happen to be. Consider a bucket approach At any point in your retirement, your income streams may be producing more cash than you are spending.
When investing, be sure to make liquidity—how quickly you need access to your cash—a central consideration. In general, the more comfortable you are with risk for reasons of investment horizon and risk tolerance the greater the level of risk—and potential return—you can afford to pursue.
One approach to consider is to bucket cash for different short- and longer-term needs, such as living expenses, short-term goals, and emergencies. Here are some ways to implement each: If you have short-term savings goals, such as a car purchase or a dream vacation, you may want to consider investing in low-risk vehicles such as Treasury bonds and FDIC-insured CDs with maturities that correspond to the date you need the money.
You should review the adequacy of your emergency fund, or set one up if you have not already done so, keeping as much as six months of expenses for unexpected events, like a roof that needs to be replaced or another hefty bill you did not anticipate.
However, one size does not fit all. You will need to take into account your expenses, liabilities, and other individual circumstances in order to determine a dollar figure that suits your needs.
Consider investing this money in a mix of highly liquid accounts such as money market funds, and less liquid options such as CDs or conservative bond funds. How to tie it all together The key is to make sure your money can be easily accessed, moved, and invested according to your needs, and, ideally, to do so in a way that mitigates overall fees.
Some people opt to consolidate by putting all their funds into a group of accounts with a single provider so that money can move easily from one account to another. For example, you might have a basic checking or brokerage account for paying the bills with a variety of electronic options, including mobile or Web payments, electronic funds transfer, mobile check deposit, or similar services.
Look for a provider that offers options to easily transfer money from your retirement accounts, such as IRAs, into your cash account. Some firms will offer periodic withdrawal methods so you can harvest retirement assets or earnings on a schedule that fits your needs. Periodic withdrawals help you create a "just-in-time" income stream and allow remaining assets to produce potential earnings until you need more cash.
If you are spending less than you expected, consider setting up access to a sweep system that automatically reinvests excess cash.
Look to mitigate fees and increase efficiency Retirees can create a similar kind of financial network by linking accounts across different banks and brokerage firms. This may require a little more effort and there could be some additional fees involved. Consider an account that offers:DOL fiduciary rule will nudge (k) advisers to zero-revenue-share fund lineups Such a strategy would aim at levelizing compensation, thereby dodging additional compliance requirements and.
“The ((k) fee) with the biggest impact is the mutual fund management and marketing fees or the expense ratio but it’s typically buried in the prospectus and it looks like a small percentage.
Managing your (k) takes work.
Your administrator handles your portfolio's actual transactions and the recordkeeping and reporting, but you decide when and how to reallocate and rebalance your assets. Table of Contents Case Background 2 Key Case Findings 2 Recommendations 4 References 8 Exhibits 10 Case Background This case is regarding a new employee, Emery Matthews, at a company, Hines, who is being offered an opportunity to invest earnings into a (k) retirement plan.
The plan administrator keeps track of the company’s (k), handling management details and making sure that the plan runs smoothly. Your sponsor also chooses your plan provider, typically a financial services company that offers investment products, plan administration and record-keeping services.
Focuses on an individual's decision to participate in his firm's (k) plan and how to invest his contributions. Plan participants have a choice of 10 mutual funds with different investment strategies.
Includes data from Morningstar on the composition and performance of the different funds and information on different asset allocation strategies provided by the fund .