The Pre-Retirement Bucket List

Crossing items off a bucket list is one of the things pre-retirees look forward to most. However, there are some things to check off during your working years that could make retirement even more enjoyable.

If you have dreams of climbing Mount Kilimanjaro or touring Napa’s wine valley, you might consider giving something on your bucket list a try before you retire. One way to avoid a letdown in retirement is to use the years preceding it to find out if your perceived dreams are all they’re cracked up to be.

For example, if you’re thinking of relocating when you retire, use some of your vacation time to visit your retirement destination in different seasons. Will you still want to live in your dream beach community in the winter, when it’s a bit too windy and cold for those long beach walks? Some people find they miss experiencing all four seasons — the beauty of autumn leaves changing color; snow on the lawn. Maybe year-round warm weather is as nice as it sounds, but it’s worth spending time contemplating every detail before you pack up and move.

By the same token, consider whether you can relocate before you retire. For instance, perhaps ask for a transfer if your company has an office near your retirement dream spot. Or, pitch the idea of working remotely from home. Retiring and moving at the same time can be quite disorienting; try it out before you quit.

Also, develop a strong social network outside of work. Many times colleagues are our closest friends, but we don’t all retire at the same time. Whatever hobbies you want to pursue in retirement, start them now and develop a network of friends who share those same interests. Consider it “trying out” new friends to find a good fit.

From a financial perspective, you may want to consider paying for any pending large-ticket expenses before you retire, such as replacing windows or the roof, buying a new car or a new water heater. Also, try living on your projected retirement income before you retire. This is easier if the kids have moved out of the house and you’re all paid up with college and the mortgage. See what life would be like on the amount you have allotted for yourself.

Money Saving Tips

Various Types of Annuities

With so much focus on how to generate retirement income these days, there is one type of vehicle designed to offer a steady stream guaranteed by the company that produces it: the annuity. However, there are various types of annuities and it is important to understand how each works to determine if/which one is appropriate for your financial situation.

Immediate Annuity

An immediate annuity may be appropriate for a conservative client who needs current income. This annuity converts a single lump-sum payment into a regular stream of fixed income payments for a specific period of time, or for life.

While an immediate annuity doesn’t provide income growth opportunity, it can provide a reliable income source to supplement other investments that need more time to grow or recover from market losses. The immediate annuity also provides tax-advantaged payouts when purchased with nonqualified funds.

Fixed Annuity

The fixed annuity is something to consider if you don’t need to start receiving retirement income until sometime in the future; say, five or 10 years. During this time period, the funds used to purchase the fixed annuity will grow at a fixed interest rate. Once the owner decides to “turn on” (annuitize) the contract, it will pay out a fixed level of income for a specified period of time. Again, the owner has the option to choose lifetime income.

The fixed annuity addresses two major concerns when it comes to retirement funding: Avoiding market losses and providing income you cannot outlive. While a fixed annuity can provide reliable income, it may work best as a complement to a larger retirement portfolio. That’s because the fixed payout stream does not allow for income growth opportunity over time, which is important to address the impact of long-term inflation.

 Variable Annuity

The variable annuity offers the greatest opportunity for growth of income, but it also has higher fees and increased risk. It is best suited for more risk-tolerant investors who have the option to wait for a longer period of time before receiving retirement income, as this time offers the variable annuity time to accumulate a greater income base for payouts. The typical variable annuity offers a variety of investment options managed by a diverse selection of professional money managers. Once payouts begin, the amount may increase or decrease based on the performance of the underlying investments. While this presents greater risk, it also offers the opportunity for larger payouts to offset the impact of inflation.

Variable annuities are known for offering diverse investment opportunities, tax-deferred growth on gains, the option for lifelong income and optional riders for income payout strategies and death benefits. There are also equity-indexed annuities, which offer a set level of income with the opportunity for higher payouts based on the performance of a particular market index.

Annuities are complex financial contracts between the purchaser and the insurance company. It is strongly advised that you work with an experienced financial advisor when considering an annuity for your portfolio.

Annuities are insurance products that may be subject to fees, surrender charges and holding periods which vary by company. Annuities are not a deposit of nor are they insured by any bank, the FDIC, NCUA, or by any federal government agency. Annuities are designed for retirement or other long-term needs. 

Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Any references to guarantees or lifetime income refer only to fixed insurance products, not securities or investment products. Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company.

Planning Tip

The Value of Rebalancing

It’s important to re-evaluate your investment profile after a long-term market rise or decline. One tactic that can help keep your financial strategy in line with your needs and objectives is portfolio rebalancing. This involves assessing whether holdings that have performed well now represent a greater percentage of the portfolio than originally intended, and therefore pose a greater risk.

If you and your advisor decide it’s a good idea to sell off these holdings, consider using the proceeds to add to other asset classes in order to return your portfolio to the original allocation developed for your needs, goals, risk tolerance and investment timeline.

Content prepared by Kara Stefan Communications.

1Jeff Reeves. USA Today. April 21, 2016 “Can an annuity act as your pension plan?” Accessed Aug. 19, 2016.

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