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Be smart: Get a financial check-up before retirement

As you approach retirement, you will quite likely be assessing your financial situation to determine if you have saved and invested enough to afford a comfortable future. Generally, financial professionals advise that to maintain your current lifestyle you will need approximately 70 percent to 80 percent of your current annual income each year in retirement, although your own situation may differ based on your personal goals and finances.

Taking an in-depth look at your finances and an inventory of your retirement funds approximately five to seven years before retiring will give you time to make adjustments to help you meet your goals when retirement time comes around.

Generally, retirees turn to Social Security benefits, earnings including part-time jobs, personal savings and investments, including IRA accounts or additional employee savings plans and company retirement plans.

According to the Social Security Administration, Social Security may account for only about 40 percent of your income in retirement. Personal investments and savings, company retirement plans and other sources will have to make up the remaining portion of your income — about 60 percent.

After calculating your projected retirement income, you also need to examine your current expenses and determine which items will increase or decrease, which will be eliminated and which will be added after you retire. By reviewing this information early on, you can develop a sense of whether you’ll have the necessary income to cover your expenses once you retire.

Compare your expense calculations with your projected sources of income and determine whether you will have a surplus or a deficiency. At the same time, determine at what point in retirement you will need to begin drawing on your retirement plan assets. If, after comparing your expenses with income, you have a surplus, you are on the right track to enjoying a comfortable retirement. However, if you note a deficiency, you can make decisions now to help ensure that you will have a relatively comfortable retirement later on.

Having a good understanding of investing becomes more important as you approach retirement. Examine all the investments available through your retirement plan and determine into which category such as stocks, bonds or cash equivalents each of them falls. Next, assess your level of risk. As people prepare to retire, they generally want less risk in their investments than in the past. Since your income from employment will have stopped or decreased considerably and your assets may be invested over a shorter period, it may be more difficult to recover from loss.

Therefore you may want a lower-risk investment strategy than before. Whether you intend to use your money over a relatively short period or spread it out through your retirement is another important factor.

There is no set asset allocation strategy that works for everyone. Before determining which strategy best fits your personal situation, keep in mind that different people have different financial resources and expectations regarding how long they will be in retirement.

Therefore, individuals have different risk tolerances and investment horizons. And remember, no matter what asset allocation strategy you choose, there is always some level of risk and no guarantee that you will not experience a loss.

Nancy J. Marciniak, senior vice president – wealth management with Morgan Stanley Smith Barney in Sarasota, can be reached at (941) 364-7475 or (800) 237-9441.

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