Investing in more bonds for a short period is a good strategy for retirement savers to curb the sequence of return risk, writes a retirement expert on The Wall Street Journal. Called the "bond tent" strategy, this approach allows preretirees to increase their asset allocation in bonds and other more conservative investments in the 10 years prior to retirement, writes the expert, adding that retirees who use this strategy will have to spend down these bonds in the first half of their golden years and return to their desired asset allocation. "By relying more on bonds in early retirement, the portfolio’s dependency on short-term (and unreliable) stock returns is reduced."
Aside from having a sufficient nest egg for retirement, clients should know the difference between Medicare and Medicare Advantage, and determine which of the two better suits their healthcare needs, according to this article on MarketWatch. Pre-retirees should also know that they may owe taxes on their Social Security benefits depending on their combined income. They may want to invest in Series I Savings Bonds, which offer tax deferral on guaranteed returns throughout their 30-year life.
Investors have to take note of inflation and other numbers when engaging in financial planning for next year, according to this article on Morningstar. For example, while contribution limits for 401(k), 403(b) and 457 plans will remain unchanged in 2017, the total allowable contribution to 401(k) plans will increase to $54,000 from $53,000. Retirement investors will not see an increase in IRA contribution limits in 2017, but the income threshold to qualify for a tax deduction on traditional IRA contribution will climb slightly next year.
An experiment of building a portfolio of dividend paying stocks and reinvesting the dividends using an online automatic program has generated positive results that even outperform the market, according to this article on Nasdaq. After 10 years of compounding growth on dividends and reinvested dividends, a portfolio with an initial investment of $20,000 will have an annual income of $5,299, which is 278.5% more income than the earnings received by an investor who opted not to reinvest his dividends. Baby boomers with inadequate retirement resources may want to try this strategy that can help turn their growth portfolio into one that produces the much-needed income.
Retirees who have to take a required minimum distribution from their tax-deferred retirement accounts by December 31 should initiate the request process as soon as possible, according to this article on Kiplinger. This is to avoid the peak of call and request volume for financial service providers, which usually happens at the end of the year, says a retirement expert with Fidelity Investments. Submitting the request early will also give them enough time to sell some holdings if the transaction so requires, as the markets suspend operations during the holidays.
