Will you have “enough” money to live comfortably? The months and years before retirement may be filled with trepidation and financial worries. In order to minimize financial concerns before retirement, here are some steps you should take in the five years leading up to it:
Organize your assets for tax efficiency
Most retirees underestimate the impact taxes will have on their retirement income. If you have an idea of what your retirement tax bracket will be, work with your advisor to arrange your assets in a way to create the greatest tax efficiency when you start withdrawing. Selling assets might trigger large capital gains taxes, and there may be additional taxes on pension payments.
Know your pension options
For some people, delaying taking Social Security or other pensions until as late as possible might make sense. Learn more about timing claiming benefits . Be sure to check with your Israeli pension advisor in Israel about taking Bituach Leumi and withdrawing your work pension as a lump sum or in monthly payments.
Don’t be too conservative
While it may be tempting to reduce your exposure to risk-based investments pre-retirement, if you get too conservative, you could inadvertently diminish your portfolio’s capacity to generate enough income to meet your needs. A balanced and diversified portfolio of both stocks and bonds may be your best strategy for maintaining capital growth while reducing portfolio volatility. But beware of taking risks without consulting with a licensed advisor first.
Find your retirement ambition
Studies show that retirees who stay engaged and productive are happier in all aspects of their lives. Explore new interests that can be enjoyed now and more fully developed as you cross the retirement threshold. These might include volunteering, mentoring, or starting a new hobby or business.
The five years before retirement is a critical period for ensuring a smooth transition into your next stage of life. If you’re concerned about how to handle your investments for retirement, email me at doug@profile-financial.com.
Douglas Goldstein, CFP®, is the Director of Profile Investment Service, Ltd., which specializes in helping people who live in Israel with their US dollar assets and American investment and retirement accounts. He helps olim meet their financial goals through asset allocation, financial planning, and using money managers.
Published June 19, 2017. Updated March 2019