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Retirement Planning Revisited

Kick off 2012 with a renewed focus on improving and protecting your financial well-being.

Planning for a financially secure retirement doesn’t end once you retire. Your decision-making and financial management skills are needed now more than ever—especially if you are one of the many seniors who are affected by the Government Pension Offset/Windfall Elimination Provision, denied cost of living adjustments, or facing higher than expected health care costs.

With potentially more years in retirement than past generations, today’s retirees face more complexity in budgeting, portfolio planning, and account management issues. Even those with sufficient resources must properly position assets, not only to generate income but also to counter the effects of inflation and unexpected expenses.

Here are steps you can take to optimize your retirement income:

Review your distribution strategy. The heart of your strategy should be to maintain a conservative withdrawal rate from your retirement assets and efficiently convert assets to income. Don’t assume you’ll withdraw at the same rate every year, as your needs may change. If you take out more in a given year—to finance a large-ticket item such as a car, for example—it is wise to make up for it by withdrawing less in a subsequent year.

Rule of thumb: Consider with-drawing from taxable accounts first such as a stock brokerage account to take advantage of the tax deferral on 403(b) or IRA accounts. But don’t rule out the opposite approach if, for example, you have received an inheritance, or have assets you want to leave to family members or charities.

Create an income stream. Don’t overlook annuities. An annuity is an insurance contract designed to provide retirement income: You invest money today and the insurance company pays you back, plus earnings, when the annuity matures. You choose income payout options based on your needs, whether immediate or deferred, for your lifetime or for a certain period only. This is an important tool for making your money last longer, but do your homework before jumping in—find out how your income will be affected by factors such as your age, the amount invested, the type of annuity chosen, fees, and surrender charges.

Review and update your asset allocation. Some stock exposure is important for long-term growth to counter the effects of inflation. But, stocks also bring added investment risk. Mitigate your portfolio risk by maintaining an asset allocation of stocks/bonds/cash that reflects your time horizon and risk comfort level.

Focus on your health. One of the greatest threats to individual long-term financial security is unpredictable health care costs. In fact, medical expenses contribute to nearly half of all personal bankruptcies. You can make a difference with diet and exercise and other preventive measures; good health is an asset that pays off in the long run.

Don’t go it alone. There’s nothing wrong with being a do-it-yourselfer. But, don’t be afraid to ask for help with your planning. Working with an accountant or retirement planning specialist can be a wise investment as you try to manage all of the moving parts of your retirement income.

Taren Coleman is a Chartered Retirement Planning CounselorSM and the senior partner relations specialist for investment programs at NEA Member Benefits.

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1-Jan-12

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