By Kevin Janiec CFP®, MBA
You’re in your 60s. You have more than $1M in your retirement savings. You’re feeling ready to call it quits. Fantastic!
But before you put in your “two weeks” notice, consider three factors that might make your nest egg less valuable than you think:
Inflation: Inflation has all of our attention right now. But whether inflation persists as rampant as it is this year or as light as it was in the preceding decade, this invisible force is inevitably going to increase the cost of living throughout your retirement. Your retirement nest egg is not likely prepared to afford your future needs if it doesn’t keep growing. It’s essential to keep a significant portion of your money invested to outpace the continuous increase in prices.
Taxes: A meaningful percentage of your retirement savings could ultimately be shared with the IRS. It’s important to be aware of the tax implications of your accounts and prepare your income plan accordingly. If your retirement savings are primarily located in a 401(k) or Traditional IRA, you’ve done a nice job taking advantage of tax-benefits over the years as you grew these accounts. However, this is when Uncle Sam becomes a significant business partner of yours. Maybe you have a large portion of your savings in taxable non-retirement accounts. Even here, you’ll also likely be subject to capital gains taxes when using this money. Having tax-efficient income sources will be key to stretching the longevity of your savings.
Sequence of returns: In the early years of retirement, the market returns of the portfolio that you are drawing from are critically important. Even if the market does well in later years, big losses early in the withdrawal period can significantly increase your chances of running through your savings. The investing strategy that got you to this point as an “Accumulator” could be detrimental with poor timing as you become a “de-cumulator.” Bucket your savings accordingly and draw from your money thoughtfully.
Unfortunately, retirees have no control over any of these three factors.
Fortunately, all of these factors can be effectively prepared for.
First, gain awareness of these risks. ☒
Then, seek guidance to customize the timing, source, and sequence of your “retirement paycheck” strategy.
It will make a considerable difference on the retirement lifestyle that you can afford. Most importantly, a thoughtful withdrawal strategy will increase the sustainability of your wealth.
We’ll dive into each of these factors in future blog posts. Reach out if you would like to discuss how each of these risks impacts you specifically.
Hear our team talk about the challenges of oversimplifying retirement income. Check out this brief “Coaches Corner” segment of the Untucked Podcast.
Investment Advice offered through FC Advisory LLC, a registered investment adviser doing business as “New Wealth Project” and as “Financial Coach”. This content is provided for informational purposes only. Views and opinions expressed are those of the authors and do not necessarily reflect those of FC Advisory, LLC. Information provided is not and should not be interpreted as investment, tax, legal, or other professional advice or recommendation by FC Advisory, LLC or the members of our firm. Always consult the appropriate professional regarding your specific situation before implementing any options presented or inferred. FC Advisory LLC, All rights reserved.
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