While retirement can be a time of great joy, exploration, and relaxation, it can also be fraught with financial concerns. Is your current lifestyle sustainable? How long will your retirement savings last? What strategies should you use to ensure your income lasts for the rest of your life?
In this blog post, we explore some wealth management tactics you can use to protect and nurture your hard-earned retirement savings to reduce the risk of running out of money late in life when you have very few options.
Read our popular Quick Guide, “Comprehensive Wealth Management for High-Income Earners in Paramus, NJ.”
Wealth management strategies that help ensure your retirement savings will last can be quite diverse – for example, factoring in lifestyle expectations, current age, health, genetics, and willingness, capacity, or tolerance for taking investment risks. Read our wealth management tactics to make them a part of your retirement planning strategy.
1. Retirement Budget
The first step to pursuing a successful retirement is the creation of a retirement budget. It involves estimating your retirement spending, considering living expenses, healthcare, leisure activities, and travel. Next, you should identify all the sources of retirement income you will receive during your and your spouse’s retirement years.
Integra Tip: Develop a realistic retirement budget based on your expected income and expenses. You should also factor in the unexpected, such as significant changes in the markets/economy that might impact you – for example, inflation, changes in the tax code, or a significant stock market decline. You should also plan for other unexpected changes, such as the need for more health care as you age.
2. Withdrawal Strategy
Once you understand your retirement income sources and planned expenses, your next step should be to create a withdrawal strategy based on financing your retirement lifestyle, necessities, needs, taxes, and other considerations.
Many retirees use a 4% withdrawal rate rule. Say, for example, you have $1,000,000 in your retirement accounts. Using the 4% rule, you would withdraw a maximum of $40,000 from that account each year to help fund your standard of living. This is in addition to Social Security and other sources of retirement savings.
Remember that funds withdrawn from 401(k) and traditional IRA accounts will be considered ordinary income, which may impact your tax bracket.
Integra Tip: Setting realistic retirement goals is key to preserving retirement assets. Having an open conversation with a CERTIFIED FINANCIAL PLANNER™ in Paramus, NJ, can be an important first step. Without those conversations, you could make mistakes that undermine your future financial security.
3. Social Security Benefits
Another consideration for your withdrawal strategy is your use of Social Security benefits as part of your income plan. It may be possible to leverage your Social Security benefits so that you don’t have to draw down on your retirement assets as much or as soon as you otherwise would have to. There are pros and cons associated with the right time to start taking your social security payments:
Claiming Early (Age 62):
- Pros: Starting now can be helpful if you’re retired, in poor health, or have a shorter life expectancy.
- Cons: Reduced monthly benefits for life; potentially lower lifetime benefits if you live longer than a normal life expectancy
Claiming at Full Retirement Age (67):
- Pros: Full benefits, no reduction for claiming early.
- Cons: Might have to wait longer to get benefits and need other income or savings to cover expenses.
Claiming Later (up to age 70):
- Pros: Higher monthly benefits for life, potentially higher lifetime benefits if you live a long time.
- Cons: Must wait to start benefits; need other income or savings to cover expenses until benefits start.
Integra Tip: You’ve been paying into Social Security for most of your life, so have an action plan to leverage this added retirement income. Make sure you fully understand the tax implications that may impact when you start taking Social Security benefits.
Now that you have a withdrawal strategy, the next wealth management tactic is to ensure that your retirement and other investment accounts are adequately diversified. You want to ensure that your portfolio(s) are properly diversified and that your asset allocations align with your risk tolerance, time horizon, and retirement goals. Diversification is your number one strategy for minimizing your risk of large financial losses.
Integra Tip: A set-it-and-forget-it investment strategy may be a challenge, especially during retirement that changes over time. You want a proactive response anticipating as many challenges during retirement as possible. Remember, you and/or your spouse may be retired for 30 or more years.
5. Healthcare and Insurance
One of the major expenses that retirees frequently don’t account for enough in their planning is healthcare and insurance needs. One option is a deferred income annuity, a type of longevity insurance that provides a steady income stream starting at a later age (like 85). This can be a safeguard against outliving your money. Long-term care insurance or investing in a Health Savings Account (HSA) can also help cover these rapidly rising costs.
Integra Tip: There are many healthcare options available. Consider working with a CFP® who specializes in risk management and healthcare alternatives.
6. Tax Planning
Tax planning for your retirement years is another crucial component of a comprehensive retirement plan. Taxes are a form of erosion that reduces your retirement income, so it’s important to consider how they may impact your distribution rates and amounts.
Generally, it’s recommended first to take required minimum distributions (RMDs), then tap into taxable accounts, followed by tax-deferred accounts (like a 401(k) or Traditional IRA), and finally, tax-free accounts (like a Roth IRA).
Integra Tip: Integra Wealth Management specializes in creating customized tax plans that account for all aspects of your financial well-being. As the saying goes, “Failing to plan is planning to fail.”
7. Working With a CERTIFIED FINANCIAL PLANNER™
Given the complexities of retirement planning, working with a CERTIFIED FINANCIAL PLANNER™ could be a wise move for you and your spouse. At Integra Wealth Management, we are our trusted advocate and ally to guide you through your financial journey from working years to decades of retirement years.
Our experienced wealth management team employs a sophisticated view of wealth management, taking into account every facet of your financial future, which includes:
- Your income
- Financial obligations
- Short-term and long-term objectives
- Tolerance for risk
- Requirements for wealth transfer
- Charitable contributions
With this data, we can construct a comprehensive financial plan based on your goals, concerns, and risk tolerance.
Considering the dedication and effort you’ve put into accumulating retirement assets, it’s only fitting that an experienced wealth management team can assist you in seeking financial independence. Connect with our team to learn about our retirement planning services.