Years ago, when you brought up the concept of retirement, visions of a long and relaxing time after your career came to mind. Most people envisioned having a 20 to 30 year period filled with activities such as trips to exotic locations, days of relaxation and recreation, and time with their grandchildren.
The possibility of long-term care was generally the only issue of concern in retirement.
Times have changed !
Today, the concept of retirement has taken on new meaning. The cost of living has become very expensive, and those who would like to enjoy their mature years find it becoming less and less financially feasible. In order to achieve their dreams, retirees are finding that simply living off Social Security and a savings account is not enough.
Some people have saved their entire lives with the intention of being able to enjoy the golden years, but when developing a plan to live comfortably off those savings, they now need to consider many factors, including:
- The impact of inflation;
- How much you can afford to withdraw from your retirement plan each year;
- What required minimum distributions, if any, must you withdraw from your pension plan;
- What financial advantages could you enjoy if you delay your retirement;
- What are the mortgages, major debts and unpaid bills;
- The total amount of wealth you have collected and saved for your retirement; and
- Your retirement health and long-term care costs.
These are just a few of the complex issues retirees need to consider. A good strategy for approaching and preparing for retirement requires 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 permanent retirement.
Regardless of your age or the phase you are in or approaching, here are some important things you need to constantly review and consider:
- Remember that your cash flow needs may be different for each phase of retirement. Your initial phase and your final phase have the potential to have the most expenses. Expenses can generally be lower at the full retirement or pre-retirement stage.
- People are living longer. Better lifestyles, advances in medicine, and many new drugs have extended people’s lives longer than previous generations. It is imperative to regularly monitor and review your investment choices to give you the best chance of meeting the cash flow needs you will need throughout each phase of your retirement.
- It is imperative to periodically rebalance your investment portfolios to reflect the various priorities and changing lifestyle habits as you go through each of these stages of retirement. You should systematically review how you can adjust your portfolio based on your actual life and health changes, goals, needs, objectives, and risk tolerance.
- It’s essential to consider your long-term care needs and other costs (such as medical and funeral costs) before and during retirement.
- It is crucial to continuously monitor cash distributions from your retirement savings. We have experienced a significant decline in interest rates over the past decade, and this may affect your portfolio. In this low interest rate environment, it is even more critical that you have a strategy for taking distributions from your portfolio. In the past, a higher payout rate might have been acceptable, however, with today’s low interest rates, it is imperative to ensure that your withdrawal rates are reasonable and sustainable over the long term.
The bottom line is that at every stage of retirement, it’s wise to make sure you plan and monitor. Remember, the only thing that is constant is change!
— J. Michael Black, CFP®, is a Representative Investment Advisor at SagePoint Financial, Inc. Securities and investment advisory services offered through FINRA, SIPC, member of SagePoint Financial, Inc. (SPF) . SPF is separately owned and other entities and/or trade names, products or services referenced herein are independent of SPF. This article is for informational purposes only. This information is not intended to be a substitute for individualized tax, legal or investment planning advice, as individual situations may vary. For specific advice on your situation, please consult a lawyer, tax specialist or financial professional.