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Strategize to Ready for Retirement

Sep 9, 2015

Strategize to Ready for Retirement

Being ready for retirement is no small undertaking. Taking the time to address questions and concerns about retirement and understanding some of the bigger risks we face as we approach retirement can help bring additional clarity to our retirement situation and determine what steps we might take to help protect our retirement investment portfolio.

As an advisor who focuses on retirement income and distribution planning, I often hear questions from clients such as:

Can I retire and when? What will be a reasonable standard of living range?

How can I protect myself against the possibility of rising inflation?

Will my income tax situation change while I am retired?

What if we experience a long term care event in our later years?  What does this mean for our retirement plan?

What is a safe amount to withdraw each year from my investment portfolio so it will last my lifetime?

Where do I withdraw money if I own several different types of investment accounts?

What if the stock market declines and so does my investment portfolio?

These are all great questions and the answers to these questions will vary for every retiree given their individual financial situation. The baseline answer to all of these questions is you need a plan! A thorough review of all the areas of your personal finances will bring forth the most optimal retirement plan strategies.

Let us take a look at each of these questions.

When can I retire and what is a reasonable cost of living? How can I protect myself against the possibility of rising inflation?

This depends on the size of your retirement investment portfolio and what other retirement resources are available to you such as Social Security, pensions and annuities.  The income resources which together provide for your month to month cash flows should include diversity by resource type to help address inflation risk, longevity risk, short term stock market volatility and sequence of investment returns risk.

Will my income tax situation change while I am retired? Where do I withdraw money if I own several different types of investment accounts?

This can be a complex area. Proper income tax planning which includes the selection of securities which help to minimize taxation by different account types (IRA’s, personal investment accounts, Roth IRA’s) as well as developing a portfolio withdrawal strategy which helps to minimize your long range income tax situation helps you keep more of what you earn.  Without incorporating an income tax plan as part of your retirement plan you could be losing money to the tax man you would otherwise keep.

What if we experience a long term care event in our later years?  What does this mean for our retirement plan?

Without a plan for a long term care event, your retirement plan may be destined for failure. In addition to the emotional and physical hardship to families and spouses to care for a sick family member, these events can bring devastating financial consequences with the costs of long term care added on top of the retirement cost of living which all now need to be supported by the retirement investment portfolio.  Your retirement plan must include a plan for a long term care event.

What is a safe amount to withdraw each year from my investment portfolio so it will last my lifetime? What if the stock market declines and so does my investment portfolio?

The projected safe withdrawal rate will vary based on your financial goals, investment strategy, diversity and amount of your other retirement income resources and your anticipated life expectancy.  There is no one set safe withdrawal rate that applies to everyone.

A retirement investment portfolio can be positioned to help address short term market volatility and sequence of returns risk or experiencing a period of poor market returns.  Without a strategy to help minimize the effects of these risks while taking withdrawals from the portfolio you may realize permanent losses in value to the portfolio which may never be recovered.  A decline in the portfolio value early into retirement may mean forced lower withdrawals going forward or an increased risk you may outlive your assets.

In summary, retirement is all about reliability of income and management of risk.  The right retirement strategy will help protect your investment portfolio and retirement income resources from inflation, longevity risk, unanticipated long term care costs, short term market volatility, income tax inefficiencies, and sequence of returns risk.


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