As important as it is to plan your retirement goals, you never know what variables could force you to change course. Fortunately, there are a variety of options that can keep speed bumps from running you off the road to retirement.
One of the most fluid aspects of retirement is the date. Some people have no choice but to enter retirement early as a result of a layoff, health problems or dependent care requirements. Others retire on schedule and then later decide to go back work. Still others transition into retirement slowly, cutting back on work hours or leaving a full-time job to take on part-time work.
These paradigms make the task of designing a retirement income plan more complex in some ways, but in other cases can remove some of the pressure of having to build a fully funded nest egg before retiring.
In recent years, nearly half of retirees’ income has come from a combination of Social Security and private- and public-sector pensions. The next largest resources are IRAs and tax-deferred retirement accounts.
Whether your retirement is 15 years from now or right around the corner, there are a variety of strategies available to help put you on the path toward your retirement goals. One recent study found that retiree income security can be improved depending on the withdrawal strategy, or strategies, deployed.
Kathy Kristof, a financial journalist, says one approach is to allocate reliable income sources, such as a pension, Social Security benefits and immediate annuities, to pay for fixed retirement expenses, while assigning other financial vehicles to discretionary expenses — a model she refers to as the “bucket” formula.
Other strategies include withdrawing a set percentage from your retirement savings each year, building a well-diversified portfolio designed to deliver an acceptable range of returns to provide for long-term retirement needs and/or relegating a portion of your portfolio to assets that offer growth opportunity throughout retirement.
When you’re setting up an initial strategy, it’s also important to consider how and when you’ll draw income once you’ve retired. The tax treatment of withdrawals can vary significantly in retirement and may be impacted by any current income you earn. Taxable accounts, tax-deferred retirement accounts, tax-exempt retirement accounts and even required minimum distributions should all be considered in determining the tax impact of retirement withdrawals. Individuals are encouraged to consult with a qualified tax professional before making any decisions about their personal situation.
Each of these retirement income models should be assessed in conjunction with your individual needs, tolerance for risk and time horizon. Remember that 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 give us a call to discuss your unique situation and how we can design a specific plan of action that helps you work toward your financial independence.
Interested in reading more? Here are some articles that may be of interest to you:
[CLICK HERE to read the article, “Retirement Income Among Wealthier Retirees,” from Vanguard. May 2014]
[CLICK HERE to read the article, “Retirement Income Security Depends on Goals, Strategies,” from Benefits Pro. June 13, 2016.]
[CLICK HERE to read the article, “How to Invest After You Retire,” from Kiplinger. Feb. 2015.]
[CLICK HERE to read the article, “3 Ways to Be Smarter About Drawing Retirement Income from Your Nest Egg,” from Money. April 20, 2016.]
[CLICK HERE to read the article, “Four Tax-Efficient Strategies in Retirement,” from Fidelity. April 27, 2016]
Raymond C. Lantz, Jr. is the president and founder of USA Wealth Group, Inc. Ray has many years of experience advising clients in retirement and sophisticated tax planning strategies, multi-family and commercial real estate projects, and legacy planning. Ray is a graduate of Clark University, holds a law degree from Boston College, and a master of laws in taxation from Boston University. You can hear him every Sunday on Money Wise with Ray Lantz on WBSM 1420AM or on the Radio Pup app.