Worried About Retirement? 4 Tasks to Calm Your Nerves and Build Confidence, From a Retirement Pro

For many, retirement is a phase of life to look forward to: A time to travel, practice hobbies and be close to loved ones.

However, as the era of defined pension plans fades and responsibility for retirement savings shifts to individuals, it becomes even more crucial to review your workplace benefits — from open enrollment to 401(k) contributions and budgeting — to help ensure your financial future is properly planned.

Here are four strategies to help you feel more financially prepared for retirement.

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1. Maximize the potential of your 401(k)

Young investors have the benefit of time and hence the luxury of weathering market fluctuations, with plenty of runway to recoup potential investment losses before they retire. But for those nearing retirement, the risk calculation changes significantly.

With less time to recover, it might be time to consider repositioning your portfolio to help reduce exposure to riskier assets and safeguard the wealth you've worked so diligently to earn.

A more conservative investment strategy could include diversifying into lower-volatility assets as well as aligning your portfolio with your anticipated withdrawal timeline and lifestyle needs. This could help ensure that your savings remain resilient and accessible when you need them most.

2. Consider what happens to your 401(k) when you retire

When you retire, there are several options as to what to do with your 401(k) but knowing what's best for you and your financial goals isn't always straightforward. Each choice comes with distinct advantages and drawbacks, from investment flexibility and fees to tax implications.

If permitted by your employer's plan, one option could be to keep your funds where they are. This may be beneficial if the plan offers low fees or strong investment options, although you may no longer be able to contribute.

As another option, rolling funds into an IRA can offer greater flexibility and control over investments, as well as consolidated management for multiple accounts.

Lastly, "cashing out" or taking a lump sum distribution is generally discouraged unless absolutely necessary, as it may come with significant tax implications and potential penalties for withdrawing early if you're under a certain age.

Before making a decision, carefully weigh your options and consult with your employer's benefits team or a trusted adviser. Making an informed decision now can help you avoid costly mistakes later.

3. Don't forget decumulation and plan for spending

While planning for retirement, it's easy to think only about saving and not how those savings should be spent once you're retired. Decumulation, or the careful strategy of drawing down assets in retirement, is too often overlooked.

According to recent research, about half of America's retirees lack a formal plan for how they'll use their retirement funds, and only 22% follow any kind of structured spending strategy. Yet, without a decumulation blueprint, retirees may find themselves overspending early on or unable to stretch their resources over time.

It's important to start by projecting your retirement expenses, such as housing, health care, travel and leisure, as well as the potential need for long-term care. Then consider all potential income sources, including Social Security, pensions and personal savings.

Develop a withdrawal plan that balances your needs with the realities of market performance and longevity. Don't hesitate to access resources offered by your employer or qualified professionals who specialize in retirement income planning, such as a financial adviser who works with 401(k) plans.

4. Prepare for the unexpected

One of the most fundamental aspects of retirement planning is preparing for the unexpected.

AARP and other advocacy organizations remind us that retirement may include variables such as long-term care needs, unexpected health costs or even the possibility of continuing to work part-time to supplement income and maintain social engagement.

In fact, research shows that half of workers expect to transition gradually out of the workforce, with three out of four workers planning on continuing work for pay after retirement. For those who intend to continue working, it will be important for them to understand how that decision will affect their benefits and their overall decumulation strategy.

As you approach retirement, revisit your personal aspirations and budget, keeping an eye on external factors such as market fluctuations, asset allocation and the unpredictable costs of future health care.

Consider long-term care insurance and evaluate whether part-time work or volunteer activities could provide both financial and emotional benefits.

Retirement marks a profound change that deserves careful preparation and painstaking attention. By reviewing your workplace benefits, maximizing savings, forming a decumulation plan and bracing for life's uncertainties, you position yourself to enjoy the opportunity for relaxation, travel and family time.

Thoughtful planning today can help you prepare for whatever the next chapter brings.

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