Transitioning into the retirement stage of life is an exciting milestone. Many people find themselves asking: What will I do with my newfound time? Are there volunteer opportunities or charities that I want to become more involved with? Will I do more traveling? Spend more time with family?
Along with all the exciting plans to look forward to, the idea of retirement can also bring a sense of uncertainty. One of the biggest questions on many people’s minds is: Where will my money come from when I am no longer receiving a regular paycheck?
If you are preparing for retirement, chances are that you have worked hard and saved diligently for your financial future. You likely have funds saved across various accounts: workplace 401ks or 403bs, traditional and/or Roth IRAs, and taxable accounts. You may also have a pension and be eligible for social security benefits.
If you are preparing for retirement, chances are that you have worked hard and saved diligently for your financial future. You likely have funds saved across various accounts: workplace 401ks or 403bs, traditional and/or Roth IRAs, and taxable accounts. You may also have a pension and be eligible for social security benefits.
If you are preparing for retirement, chances are that you have worked hard and saved diligently for your financial future. You likely have funds saved across various accounts: workplace 401ks or 403bs, traditional and/or Roth IRAs, and taxable accounts. You may also have a pension and be eligible for social security benefits.
Once we figure out how much you need to support your ongoing monthly living expenses, we begin to plan for where the funds will come from. This looks different for each client. In general, here is what cash flow looks like for many people:
- Your workplace retirement plans may be rolled over into a Fidelity IRA. This allows for more investment options and potentially lower fees. This also allows us to easily manage your account distributions and rebalancing.
- When we do your tax planning, we will determine whether you should take IRA distributions or capital gains to raise the cash you need. There are many factors that play into the ideal distribution amount including your cash flow needs, your tax bracket and Medicare premium tier, and your legacy goals. We will take the agreed upon amount out of your IRA and move it into your taxable account or realize capital gains in your taxable accounts.
- Next, we will set up a regular “paycheck” from your taxable account, going directly into your checking account. Most people prefer to receive money in monthly installments, however we can setup installments to be paid in whatever frequency is most convenient for you. We also plan for one-off expenses like that dream vacation or gifts to charity or family members.
- As you begin social security or other pension benefits, we will reevaluate how much you need from your taxable account each month to cover your living expenses. Once you start social security, you will be able to reduce the amount of cash you take from your Fidelity taxable account.
The second aspect to consider is your investment allocation. A common misconception is that once you enter retirement that it is time to make your investment portfolio more conservative.
Readdressing your portfolio allocation should happen several years before you retire. Every retiree’s biggest nightmare is what happens if the financial markets enter a recession before they retire?
This is why we start with understanding your real spending numbers, how much risk you can take financially and emotionally, and your legacy goals to define an appropriate investment allocation long before you decide to step away from work.
Remember, retirement is another phase of life that can last many decades. It is important that we balance your investment allocation with conservative assets like bonds that help fund your near-term cash flow needs and growth assets like stocks that can keep up with inflation over a longer time frame.
As you get closer to retirement, Brett will start adding to shorter term bonds, bond funds, and cash to ensure that you have several years of cash flow needs available. This helps provides a cushion for the extra or one-off spending like your dream vacation or charitable gifting. It also provides a cushion if thee is a financial market upheaval.
Retirement is the beginning of a new chapter. It is so important to revisit real spending numbers frequently throughout different stages of your life, especially before and during your retirement years. This is why planning is an ongoing process!
The most fulfilling part of our job is providing financial peace of mind so that you can enjoy your new chapter in life. Making sure you have regular cash flow to support your lifestyle is a big part of that peace. We look forward to hearing about your adventures and your plans to enjoy your paycheck!