If you're reaching the point when you can start to count down to retirement, you may be getting increasingly excited by the day. But if you want to make sure you're ready for retirement, you'll need to pay close attention to your IRA as that milestone nears. Here are a few key IRA moves to make in 2024 if you expect to be retiring shortly after.
1. Assess your balance
Looking at your IRA balance is easy -- just log into your account and note the number you see on your screen. The trickier part is figuring out what your balance means in terms of annual income.
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Let's say your current IRA balance is $900,000. That's a lot of money when you look at it as a lump sum. But remember, you need that money to last for many years, so you can only withdraw a certain amount annually to avoid depleting your cash reserves in your lifetime.
Part of assessing your IRA balance is figuring out a safe withdrawal rate, based on factors that include your investment mix and retirement age. From there, you'll need to see how much annual income that gives you.
Let's say you land on a 4% withdrawal rate, which financial experts have long recommended. With a balance of $900,000, that means you're looking at an annual income of $36,000.
It's important to keep that number in mind so you can make sure it works for your retirement plan. If it doesn't, you may want to push yourself to work and save a bit longer. Otherwise, you may need to compromise elsewhere, such as downsizing your home once your career wraps up.
2. Shift over to some safer investments
It's a great idea to go heavy on stocks when you're years away from retirement. But if you're nearing the point of resigning from your career, then it's time to shift over to safer investments to minimize your risk.
This doesn't mean that you should unload every single stock in your retirement portfolio. Rather, replace some of your stock holdings with safer alternatives, like bonds. You'll want some investments that are generally more stable at a time when you're likely to be selling off assets to pay your living expenses.
Also, if you're close to retirement, it's a good idea to move some of your money into plain old cash. You may want to have up to two years' worth, in case market conditions are lousy across the board at any given point in your retirement.
3. Make sure you're well-diversified
It's not enough to move some of your IRA out of stocks and into bonds as retirement nears. Within each asset class, you'll want to make certain your holdings are reasonably diverse.
Make sure you're holding stocks and bonds across a range of market sectors. Investing in broad-market index funds is another good option.
After a long career, retirement is a reward you very much deserve. But make these IRA moves first to set yourself up for financial success.
