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Is retirement a time to relax? Not when it comes to your finances

by Jim Sloan

Let's say you're on the cusp of retirement. You're looking forward to it, in large part because for the last 30 years or so you have been watching your investments like a miser and you're looking forward to not having to worry about finding the best cd rates or high interest savings account anymore.

Think again.

Investment, inflation and health care risks abound

Just because you have saved diligently and have socked away enough in your savings accounts or money market accounts or stock portfolio to live comfortably in your twilight years, these three things could happen:

  1. Stocks take a tumble? Chances are a lot of your retirement savings are still tied up in the market, and although you were smart and opted for lower-risk investments as you approached retirement age, a steep drop like the one that occurred, gulp, just two years ago, could have a big impact on your portfolio.
  2. Inflation takes off. Not to be a naysayer or anything, but inflation happens. Is your portfolio designed in a way to cover that inconvenient economic force?
  3. Medicare doesn't cover all your medical needs. Have you budgeted for supplement health insurance?

The point is that your retirement years will have to include at least a little bit of planning and economic engagement. You'll still be following interest rates and looking for the highest cd rates. A high yield savings account will still be your Holy Grail.

7 steps retirees can take to guard against disaster

With that in mind, here are seven tips to ensure your retirement remains productive:

  1. Keep an eye on portfolio growth and inflation. If your portfolio is growing and inflation is relatively low, your estate should grow in your retirement. However if inflation is growing and your portfolio is experiencing a low or negative return, you could run out of money before your retirement is up.
  2. Build a portfolio that is bigger than you think necessary.
  3. Take a close look at the market and inflation before deciding on retirement. If inflation is high and market returns are low, you may want to hold off before taking distributions. Other options include retiring, but with a part-time job, or dramatically reducing your living expenses by downsizing, according to a story published by U.S. News & World Report.
  4. How much will you need to supplement Social Security? Many retirees buy annuities, and many financial advisors recommend that annuity payments cover your living expenses, such as for housing and food.
  5. Get advice on distributions. If you thought tax laws leading up to retirement were complicated, wait till you retire. If the terms "stacking" and "leap frogging" are foreign to you, find a financial advisor who can advise you on the appropriate diversification of taxable and nontaxable assets, according to a MarketWatch report.
  6. Take taxes into consideration. Most retirement income is taxable, so you'll need to find out if you need to file a tax return after the age of 65. According to the Wall Street Journal, you'll like have to pay taxes on pension payments, IRA distributions, dividends and interest income in retirement. Up to 85 percent of your Social Security benefits may be taxable.
  7. Coordinate Social Security benefits with your spouse. The usual advice is to wait past the age of 70 to start taking your Social Security payments. That will give you the largest benefit, and those checks will be very handy when you're much older and no longer able to work. In cases where there is a high wage earner in the family, it might be beneficial to file for benefits and then suspend payments for the high wage earner while the spouse collects, according to The Wall Street Journal.

You get the idea. Financial management in retirement is not the no-brainer many of us thought. We haven't even mentioned things like "required minimum distributions," which, ironically, could end up costing you a pretty penny in tax penalties if they aren't handled properly. This is capitalism, folks. No one said it would be easy.

Disclaimer:This content is not provided or commissioned by American Express. Opinions expressed here are author's alone, not those of American Express, and have not been reviewed, approved or otherwise endorsed by American Express. This site may be compensated through American Express Affiliate Program.

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