SmartAsset and Yahoo Finance LLC may earn commission or revenue through links in the content below.
When you retire, you make the final shift from the era of wealth accumulation to wealth management.
This is a big deal. Managing your IRA in retirement is an important project. You want to strike the balance between a newfound need for security, since you can no longer wait out downturns and replace losses, and a continued need for growth, since you will need this money for decades to come. Every household will have a different answer for how they want to manage their money, but here are a few things to consider as you approach retirement.
To create a retirement strategy for your own goals, consider speaking with a financial advisor.
First things first, it’s worth doing the math for a Roth IRA conversion.
At any time, including when you retire, you can roll over your tax-advantaged retirement accounts from a pre-tax account (such as a 401(k) or IRA) into a post-tax Roth IRA. While there are tax implications to doing this, there’s no cap on the money that you can roll over.
The advantage to this is that you can partially or entirely eliminate income taxes from your retirement portfolio. The disadvantage is that you will pay full income taxes on all of the money you roll over in the year you do so. And, while your Roth IRA will then continue to grow tax-free, the money you paid on that conversion could also have continued to grow. So there is both a present cost and an opportunity cost.
If a Roth conversion works, it can be a significant long-term advantage. Just make sure that it will, in fact, work. Note than if you choose to roll your money over to a Roth, you may have to leave the money for five years before withdrawing to avoid penalties. A financial advisor can discuss the rules of retirement accounts with you.
Portfolio balance refers to the percent of assets make up the different sections of your retirement portfolio, such as stocks, funds and bonds.
In your working life, your portfolio will be significantly balanced in favor of equities. Many advisors recommend that you hold between 60% and 80% of your retirement portfolio in assets like stocks and index funds while accumulating wealth.
In retirement, your risk profile changes. You no longer have new income with which to replace losses and, arguably more importantly, you no longer have the time to wait out downturns. Even if the market dips, you will still need to cash out assets for your income. This argues for a balance toward security. But at the same time, you will likely need this money for decades to come. Inflation and costs will grow over time, and ideally you want your money to grow at a faster rate. This means you will still need some growth-oriented assets on hand.
