You've retired! Now put your plan to the test

  @Money October 22, 2012: 2:03 PM ET
gallery ret one year in

Throughout retirement, check your financial plan and your spending periodically.

NEW YORK (Money Magazine)

This story is part of Money magazine's Retirement Guide 2013, where you'll find strategies to guide you through the last stretch, starting at 10 years out, then five years, one year, and, finally, your first year of leisure.

Welcome to your first year of retirement. You made it! Hard work and diligent saving have paid off. Your financial plan should practically run itself at this point. Still, aim to check in periodically.

Savings Target: 1 year in
12 x househould income To replace 70% of your pre-retirement income at 65

What to do

Don't go chasing yield. As you age, the fixed-income portion of your portfolio becomes more important. The goal isn't maximum income, but maximum preservation -- by way of diversification. So put the majority of these holdings into a total bond market index fund. For inflation protection, add TIPS, keeping them to less than 30% of your bond share.

Anyone who has substantial money outside tax-deferred accounts and is in a high tax bracket should consider munis too. Initially, you'll also keep 12 months of expenses, plus your emergency fund, in cash.

Every couple of years, trim a few percentage points from your stockholdings and stick the money in bonds and cash. By 75, you should have two to three years' expenses in a money-market or short-term bond fund.

"At that point, you don't need as much growth to keep up with inflation," says Greg Carroll, managing partner at Sterling Wealth Management in Carlsbad, Calif.

Do a yearly spending checkup. Before you quit working, you gave yourself a budget. Expect to blow it.

"Retiring is like going on a long vacation, and you always spend more on vacation," says wealth adviser Jeff Townsend. Besides, your costs of living will naturally vary, as will your portfolio's value.

Related: What's the minimum amount you'd need to retire today?

Townsend suggests tracking your spending once annually to keep yourself honest. Go back to the budget worksheet on Fidelity's Retirement Income Planner. Then plug in your assets to see if your spending is sustainable.

Chronically going over a 4% inflation-adjusted draw could cause your money to run out, but even if you've gone off the rails in a few years, dialing back can make a difference.

Take from all baskets. As you spend down your cash account, you'll need to replenish it. Minimizing the taxes you incur on portfolio withdrawals will maximize the life span of your savings.

Retirees: 3 tips to help you land a job

Generally, retirees have been advised to tap taxable assets first, because the long-term capital gains rate on them is lower than the income tax rate owed on traditional 401(k) and IRA withdrawals, and because this method allows tax-deferred accounts to continue to grow without a tax bite. Whether or not the strategy works, however, depends on many variables.

Another failing: Once you do transition to drawing solely on tax-deferred accounts, you may be bumped into a higher tax bracket, says Colorado Springs financial planner and CPA Allan Roth. Not to mention that "all this becomes even more complicated with possible tax-rate changes for 2013," says Roth.

Related: 25 Best Places to Retire

While there's no one perfect system, Roth suggests being more egalitarian with your drawdown. Start by balancing any tax deductions you have with withdrawals from tax-deferred accounts, then take the rest of the money you need from taxable accounts.

Never retire your resume. Keep in mind that a worst-case scenario may necessitate your returning to work. Submitting a CV that hasn't been dusted off since Y2K won't do you any favors.

So update your résumé now while recent accomplishments are fresh in your mind, says New York City executive recruiter Steve Viscusi. Then revisit it once a year to add something, even if it's volunteer work or leadership in a social club.

More from Retirement Guide 2013:

Countdown to retirement: 10 years to go

Retiring in 5 years? Do this now

One year from retirement? Prepare to make the break

How they're getting ready for retirement To top of page



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