by: Stephanie Rogers, CFA, CFP® – Senior Advisor
Congratulations – you’ve reached retirement or you can finally see the light at the end of the tunnel. Your hard work has paid off and you are looking forward to this next chapter. But with the excitement and possibility come many big changes for which to prepare.
Retirement is no longer a fixed endpoint. Today, people are living longer, healthier lives. While this is great news, it also comes with a new challenge: ensuring your finances keep pace with your longevity.
Forget the “one-size-fits-all” approach
Traditionally, retirement advice focused on a heavy shift away from high-risk assets such as stocks, towards safe, income-producing bonds. While this may work for some, there are many reasons why this may not make sense for others. Some people may spend more than they would earn in income and need higher growth potential from their portfolio. Some people may have other sources of income and may not need or want their portfolio to generate income. The truth is, there’s no magic formula. The key is crafting a personalized strategy that prioritizes cash flow to meet your annual living expenses.
Imagine your portfolio as your own personal ATM
Think of a portion of your bonds as a “paycheck,” reliably distributing a set amount each year to cover your expenses. For example, if you spend $200,000 annually, we might recommend holding $600,000 to $1 million in bonds with laddered maturities going out at least 3-5 years. These annual maturities often provide a reliable source of cash to cover your spending needs and helps avoid the stress of selling stocks during market downturns.
Taxes: Not Your Retirement Party Guest
Retirement is also prime time for tax optimization. We recommend maximizing the benefits of tax-advantaged accounts like IRAs and 401(k)s. These accounts allow your money to grow tax-free until withdrawal. Under current rules, Required Minimum Distributions (RMDs) don’t begin until age 73 so why tap into them early? Let your taxable accounts house your bond allocation in your earlier retirement years, ensuring maximum tax efficiency. The time after retirement and before you begin taking social security or RMDs can also be an opportune time to take advantage of a low tax bracket to convert Traditional IRA dollars into a Roth IRA and further maximize the tax benefits of these accounts.
Planning for a Long and Prosperous Retirement
The days of a fixed retirement age are gone. With lifespans increasing, so should your financial plan. We recommend discussing longevity planning well before retirement.
Remember, there’s no single right answer. The key is to develop a personalized strategy that considers your income needs, tax situation, and expected lifespan. This helps provide peace of mind that when retirement comes around, you can enjoy it knowing that you have a solid foundation and plan in place.
If you would like to speak with a financial advisor to develop a financial plan or review your current plan, you can contact me at srogers@monetagroup.com or visit our website at Moneta – DSP Team. Let us be your financial quarterback, so you can focus on the things you cherish.
© 2024 Advisory services offered by Moneta Group Investment Advisors, LLC, (“MGIA”) an investment adviser registered with the Securities and Exchange Commission (“SEC”). MGIA is a wholly owned subsidiary of Moneta Group, LLC. Registration as an investment adviser does not imply a certain level of skill or training. The information contained herein is for informational purposes only, is not intended to be comprehensive or exclusive, and is based on materials deemed reliable, but the accuracy of which has not been verified.
Trademarks and copyrights of materials referenced herein are the property of their respective owners. Index returns reflect total return, assuming reinvestment of dividends and interest. The returns do not reflect the effect of taxes and/or fees that an investor would incur. Examples contained herein are for illustrative purposes only based on generic assumptions. Given the dynamic nature of the subject matter and the environment in which this communication was written, the information contained herein is subject to change. This is not an offer to sell or buy securities, nor does it represent any specific recommendation. You should consult with an appropriately credentialed professional before making any financial, investment, tax or legal decision. An index is an unmanaged portfolio of specified securities and does not reflect any initial or ongoing expenses nor can it be invested in directly. Past performance is not indicative of future returns. All investments are subject to a risk of loss. Diversification and strategic asset allocation do not assure profit or protect against loss in declining markets. These materials do not take into consideration your personal circumstances, financial or otherwise.
