Years ago, when you mentioned the concept of retirement, visions of a long and relaxing stretch of time after your career came to mind. Most people envision having a 20-to 30-year time span filled with activities such as traveling to exotic locations, leisurely days of relaxation and recreation and time with grandchildren.
The possibility of long-term care was usually the only concerning issue in retirement.
Times have certainly changed!
Today the concept of retirement has taken on a new meaning. The cost of living has become very expensive, and those who would like to enjoy their mature years are finding that it is becoming less and less financially feasible. In order to realize their dreams, retirees are finding that simply living off of Social Security and a savings account is not enough.
Some people have saved their entire lives with the intent of being able to enjoy the golden years, but when putting together a plan for living comfortably from these savings, they now have to take into consideration many factors, including:
The impact of inflation;
How much you can afford to take out of your retirement plan each year;
What required minimum distributions, if any, do you need to take from your retirement plan;
What financial benefits you may have if you delay your retirement;
What mortgages, large debts and bills you may have outstanding;
The total amount of wealth you have collected and saved for retirement; and
Your health and long-term care costs during retirement.
These are just a few of the complex issues that retirees need to consider. A good strategy for approaching and preparing for retirement is through a well-executed, long-term plan.
For many Americans, retirement today can be broken down into four phases: Pre-retirement, early retirement, full retirement and final retirement.
Regardless of your age or which phase you are in or approaching, here are some important things that you need to constantly review and consider:
Realize that your cash flow needs can be different for each phase of retirement. Your early phase and final phase have the potential to have the most expenses. Expenses can usually be lower in the full or pre-retirement stage.
People are living longer. Better health habits, advances in medicine, and many new drugs have extended people’s lives longer than prior generations. It is imperative to monitor and review your investment choices on a regular basis to give yourself the best possibility of meeting the cash flow needs you will require throughout each phase of retirement.
It is imperative to periodically rebalance your investment portfolios to reflect the various changing priorities and living patterns as you go through each of these retirement stages. You should systematically revisit how you can adjust your portfolio based upon your actual life and health changes, goals, needs, objectives and risk tolerances.
It is essential to review your needs for long-term care and other costs (like medical and burial expenses) before and during retirement.
It is crucial to constantly monitor your cash distributions from your retirement savings. We have experienced a significant decline in interest rates over the last decade, and that can affect your portfolio. In this low interest rate environment, it is even more essential that you have a strategy for taking distributions from your portfolio. In the past, a larger distribution rate might have been acceptable, however, with today’s low interest rates it is imperative to make sure that your withdrawal rates are reasonable and will be sustainable over the long-term.
The bottom line is that throughout each stage of retirement it is wise to make sure that you plan and monitor. Remember, the only thing that is constant is change!
J. Michael Black, CFP®, is an investment advisor representative with SagePoint Financial, Inc. Securities and investment advisory services offered through SagePoint Financial, Inc. (SPF) member FINRA, SIPC. SPF is separately owned and other entities and/or marketing names, products or services referenced here are independent of SPF. This article is for informational purposes only. This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice as individual situations will vary. For specific advice about your situation, please consult with a lawyer, tax or financial professional. This article is for informational purposes only. The views stated in this letter are not necessarily the opinion of SagePoint Financial, Inc. and should not be construed, directly or indirectly, as an offer to buy or sell any securities mentioned herein. This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice as individual situations will vary. For specific advice about your situation, please consult with a lawyer or financial professional. A Roth IRA distribution is qualified if you’ve had the account for at least five years and/or the distribution is made after you’ve reached age 59 1⁄2. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Please note that rebalancing investments may cause investors to incur transaction costs and, when rebalancing a non-retirement account, taxable events will be created that may increase your tax liability. This article provided by Contents provided by the Academy of Preferred Financial Advisors, Inc. © APFA, Inc.