You've reached the summit. Now what?
Retirement income planning is different than what got you here
You’ve been climbing the proverbial mountain for years…
Working hard.
Building your nest egg.
And hopefully enjoying life along the way.
Now, you’re at the summit.
You’ve been saving and accumulating for your future.
And your future has arrived.
You’re retiring in 2 years. Or 2 months. Or 2 weeks.
Congrats!
You’re excited.
Also a little worried…
Because life is different on the other side of the summit.
Mindset
Are you prepared for the mindset shift from saving to spending?
For some people I’ve worked with over the years, this can be a challenge.
I regularly encourage some of my clients to spend more money.
Because they can afford to.
Of course, some people might need to rein in their lifestyle instead.
And while you’re spending today, you need to preserve enough to make sure you won’t outlive your money.
Ultimately, you’ve worked hard and saved money to live the life you want.
Other possible mindset shifts in retirement:
Structured workday to lots of unstructured time
Changing relationships and social interaction
Fear of becoming a burden on children
Guilt around not working
Possible loss of identity & purpose
Investment Strategy
When you’re working and have a regular source of income, you might be willing to invest more aggressively.
Take more risks.
But what happens when there’s no more paychecks?
Should you leave the stock market behind and put all your money in the bank?
Or fixed income?
Probably not.
Again, you need to make sure you don’t outlive your money.
You’ll need this money for the rest of your life (more on that below).
Inflation is enemy #1.
It erodes your purchasing power over time.
So your money needs to grow to keep up with our lives getting more expensive each year.
And cash or fixed income aren’t the place to stay ahead of inflation.
No, you don’t need to be super-aggressive and swing for the fences.
But not investing in stocks doesn’t mean you’re avoiding risk.
You’re just trading one risk (short-term market volatility) for another (inflation/purchasing power).
Remember: You’re investing for the highest ROL not the highest ROI.
Longevity
None of us know how many years we have left.
And we don’t know how healthy our remaining years will be.
Today’s average retirement age is 65.
The average life expectancy for men in the US is 76.
And for women it’s 81.
So let’s assume you need to plan for 10-15 years in retirement.
But what if you live 5 or 10 (or more) years beyond your life expectancy?
Many people do. You probably know them.
Have you considered the impact this could have on your retirement income planning?
What about inflation over 20 or 30 years of retirement?
At 2.5% inflation, the cost of your lifestyle will double over 30 years.
How can you spend today and still have enough for tomorrow?
Retirement Income
You’ve received your final paycheck and you’re now retired.
Now what?
First, you’ll need to consider your available sources of income:
Social Security
Pensions
Continued work
Income from your investments
Each of these introduce different decisions you’ll need to consider.
For example, do you take Social Security sooner at a reduced amount?
Or do you wait a few years for a larger benefit?
If you have a pension, do you take a benefit based only on your life, or do you consider spousal survivor benefit options as well?
Are you going to attempt to live on dividends and interest from your portfolio, or will you take a total return approach?
I recommend a total return approach.
For many of my retired clients, we create a “retirement paycheck” that comes out of their portfolio and is deposited into their checking account each month.
This is in addition to Social Security or other income sources.
Maybe your paychecks don’t need to stop after all…
Taxes
While you’re working and earning a paycheck, you don’t always have a lot of planning options around your income taxes.
Once you’re retired, you may have more control.
You can choose which types of accounts you spend money from and when:
After-tax brokerage
Pre-tax 401k or IRA
Roth IRA
Health Savings Account
and more
These accounts and income sources can make a big difference on your income taxes from year-to-year in retirement.
And to your total lifetime tax bill.
When you add in capital gains or losses from your after-tax brokerage account, it can quickly become quite a challenge to figure it all out.
And don’t forget about IRMAA and RMDs.
These all provide opportunities to consider your choices in the context of your income tax planning.
Wait, There’s More…
In addition to everything above, you’ll also need to address:
Health insurance & Medicare
Estate planning
Long-term care planning
Large expense planning
Life planning
and anything else that’s important to you
Dangerous Descent
Did you know that there more injuries - and deaths - coming down from the peak of Mount Everest than there are from climbing it?
I’m not suggesting the transition into retirement is a life-or-death situation.
But I recognize that coming down from the “summit” requires different tools and thinking than preparing for retirement does.
This thinking and these tools are the focus of my work at Wealthcare for Women.
I feel confident in my experience and ability to safely guide you through the transition into retirement.
Plus navigating decisions you’ll face as you setup and manage a retirement income plan that will last as long as you do.
If this is something you have questions about or would like to explore further, let me know.
As a follow up to last week’s email, I wanted to share this great quote from David Bowie:
Never play to the gallery.… Never work for other people in what you do. Always remember that the reason that you initially started working was that there was something inside yourself that you felt that if you could manifest in some way, you would understand more about yourself and how you co-exist with the rest of society.… I think it’s terribly dangerous for an artist to fulfill other people’s expectations.
While Bowie is talking about creators and artists, I think his quote pairs nicely with my last email about “should vs must.”
And here’s a worthwhile and timely read from my colleague Nick, an advisor in the UK:
Thanks for reading.
Until next Wednesday,
Russ