5 Retirement Planning Moves to Consider

Your retirement goals are likely the most important ones to you. What steps can you take to help reach them?

1. Plan, plan, plan!

You and your significant other should be on the same page regarding your investments. To get there, you need to discuss what you have today and agree on your plans for the future.

Start with defining your goals and desired retirement lifestyle. Then you will need to calculate your available assets and income resources. Communicating with your spouse or partner about retirement expectations remains paramount for success.

You should also discuss realistic spending goals. Write down your retirement goals and prioritize them from most to least important. Remember to include an estimate of healthcare costs. The goals at the top of the list will, of course, be the ones you’ll want to focus on most closely.

Keep in mind that retirement planning is an ongoing process; these are not steps you should take just once.

2. Get your spending correct

Three inter-related factors ultimately complicate the retirement formula: the magnitude, timing, and frequency of your expenses. Getting a handle on your spending now can significantly increase your retirement confidence down the road. Look at your credit card bills and bank accounts to see where your money is going. When you know that, it can be easier to adjust your spending in the event of financial upheaval without sacrificing the essentials. You may discover that creating a budget now can also have the short-term effect of helping you save more.

3. Set an appropriate asset allocation

How you should allocate your investments across different asset classes (stocks, bonds, cash alternatives, etc.) will vary depending on a variety of factors. Primarily, these are what you want your investments to help you achieve (objectives), how comfortable you are with market volatility (risk tolerance), and how long it will be before you plan to retire (time horizon).

Depending on your situation, determining an appropriate asset allocation can be complicated. For help, you may want to consider turning to a professional financial advisor who can work with you to pinpoint your objectives, determine which are most and least important to you, and create a plan including a detailed asset allocation to help you reach them.

4. Prepare for emergencies

Emergencies like a job loss or unanticipated home repair can quickly derail your retirement plans. To help protect your family, consider keeping an emergency fund with enough money to cover three to six months of living expenses if both you and your spouse are working. Six to nine months of living expenses are recommended if only one person is working outside of the home.

Emergency funds should be held in a liquid but stable account, such as a bank savings account, so you can access them when needed and not have to worry about them fluctuating in value.

5. Clean up your accounts

Most investors have accumulated a number of retirement accounts over the years. These may include traditional and Roth IRAs or employer-sponsored plans like 401(k) and 403(b) plans. To simplify your finances and get a better view of your overall financial picture, consider consolidating your financial assets with one provider.

Combining retirement assets into a single IRA can offer you:

  • Ease in managing your investment strategy
  • Improved tax efficiency
  • Required minimum distribution (RMD) simplification
  • Potentially fewer fees

Please keep in mind that rolling over your qualified employer-sponsored retirement plan (QRP) to an IRA is just one of multiple options for your retirement plan. Each of the following options are different and may have distinct advantages and disadvantages.

  • Leave assets in your former QRP, if the plan allows
  • Leave QRP at current custodian/trustee
  • Move assets to your new/existing QRP, if the plan allows
  • Cash out or take a lump-sum distribution

Each of these options has advantages and disadvantages, and the one that is best depends on your individual circumstances. You should consider features such as investment options, fees and expenses, and services offered. A Wells Fargo Advisors Financial Advisor can help educate you regarding your options so you can decide which one makes the most sense for your specific situation. Before you make a decision, read the information provided in this piece to become more informed and speak with your current retirement plan administrator and tax professional before taking any action.

When considering rolling over your QRP assets, key factors that should be considered and compared between QRPs and IRAs include fees and expenses, services offered, investment options, when penalty-free withdrawals are available, treatment of employer stock, when RMDs begin and protection of assets from creditors and bankruptcy. Investing and maintaining assets in an IRA will generally involve higher costs than those associated with QRPs.

Investing involves risk, including the possible loss of principal. Asset allocation cannot eliminate the risk of fluctuating prices and uncertain returns. Diversification does not guarantee profit or protect against loss in declining markets. Stocks offer long-term growth potential but may fluctuate more and provide less current income than other investments. An investment in the stock market should be made with an understanding of the risks associated with common stocks, including market fluctuations.

Wells Fargo Advisors does not offer tax or legal advice.