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NAGDCA Note: Nearing Retirement? Questions you should be asking yourself.

What are the first steps in retirement planning?

How do I envision retirement in terms of my financial needs? How much will I travel, help my children, enjoy a hobby or just sit and relax? By developing a retirement budget and determining your income sources (pension, Social Security, retirement savings, other assets and income), you will be better prepared to manage your assets to your financial goals and needs. Your investment objectives will be influenced most by the need to supplement any pensions and Social Security benefits you expect to receive. Retirement planning would also not be complete without reviewing your estate plan and health insurance plans including, long-term care planning.  
What is my investment objective?
As investors near retirement it is very important to carefully re-evaluate their investment objectives and determine exactly how and when retirement funds will be used. Each individual is different and everyone has different requirements for their savings in retirement. Determining how savings will be used in retirement (new roof for the house, supplement pension, dream vacation, inheritance for kids, health care expenses) will help individuals manage the funds in the best possible way and select investments that make the most sense for the given investment objective.
What risks does my retirement account face?
In general terms, the greater the risk assumed by the investor, the greater the potential for loss or gain of account balances.  As an investor nears retirement, it is time to carefully re-evaluate the risks in their retirement accounts and determine the appropriate level of risk for their goals and objectives. The following are the most common types of risks an investor faces:
  • Market Risk - investors may gain or lose some of their retirement savings due to price volatility in the overall market
  • Inflation Risk- the effect that continually rising prices have investment growth and purchasing power
  • Interest Rate Risk- sensitivity of an investment's value due to changing interest rates and the potential for extended periods of low rates of return
  • Capital Risk- potential for an investor to lose all invested capital due to failure of the business
  • Business Risk – the business fails leaving very little, if any, income to its shareholders.
What is my asset allocation?
All investments have trade-offs. Investors should evaluate their accounts and select investments with characteristics that best match their investment objectives. 
If the objective is preservation of assets, short-term fixed, stable value or money market investments might make the most sense. If sustainable income is the objective, a mix of bonds or income-oriented stocks may be the better choice. And, if long-term growth is the objective, investing in high-quality growth stocks may be the way to go.
An investment portfolio becomes diversified because an investor typically has more than one objective for their investments. A good mix of investments in different asset classes can provide an investor with a limited degree of protection from market volatility. The asset allocation of an investment account should be reviewed annually to make sure underlying investments are appropriate for any given investment objectives.
A successful investor takes the time to define investment objectives, evaluate risk and then select underlying investments that align with those investment objectives. Taking the time to ask the right questions and receive proper guidance or advice are necessary steps to achieve a successful retirement.

Neither NAGDCA, nor its employees or agents, nor members of its Executive Board, provide tax, financial, accounting or legal advice. This memorandum should not be construed as tax, financial, accounting or legal advice; it is provided solely for informational purposes. NAGDCA members, both government and industry, are urged to consult with their own attorneys and/or tax advisors about the issues addressed herein.


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