Retirement marks the beginning of a new journey, different from anything you’ve encountered before. You leave behind the security of a regular income and routine, and venture into a world of limited resources and abundant leisure time. It’s a complete shift from your previous way of life, but it’s your chance to finally reap the rewards of your labor!
During the first decade of retirement, retirees commonly encounter 5 financial planning challenges. Read the following thoughts from our team at Stratos Wealth Partners in order to avoid mistakes that may negatively impact your financial future.
Not Creating a Withdrawal Strategy
Financial planning doesn’t stop once you enter retirement. Capitalize on your wealth by deciding the most tax-efficient way to withdraw funds in your golden years.
Different financial accounts are taxed at different rates. Traditional IRAs and 401(k)s are taxed at the ordinary income tax rate when you withdraw. Roth IRAs and Roth 401(k)s are taxed beforehand, so the money is withdrawn tax-free. Funds in a taxable investment account are taxed at the capital gains tax rate, which is different from your ordinary income tax rate.
As you can see, calculating the best time to pull from each account is enough to give anyone a headache. But the last thing you want is to get hit with a hefty tax bill.
Create a withdrawal strategy with the help of a trusted professional who can make sure you’re withdrawing funds at a sustainable rate and that you’re doing it in a tax-efficient way.
Overspending in Retirement
Many people spend their retirement years doing all the things they never got to do when they were working—starting a passion project, remodeling the house, traveling the world, and more.
It’s easy to underestimate the amount of money you’ll spend those first few years when you don’t account for all these “extras.” Overspending, even for a short period, can shave years off the longevity of your assets. My advice? Create a spending plan. Calculate your monthly income given your withdrawal strategy (See #1) and then create a budget.
Ignoring Inflation
Another major challenge we see new retirees face is the desire to play it safe in the stock market. This does more harm than good as it leads to inflation risk.
While healthcare expenditures are typically affected less by inflation than other spending categories, from 2021-2022 there was a 4.0% increase in medical care services (1) compared to the historical average inflation rate of 1.23%. (2) What does this mean? Retirees are more likely to feel the effects of inflation due to mandatory expenses, such as healthcare costs.
As tempting as it may be, resist the urge to worry about short-term stock market volatility. With a retirement that could easily last 20 to 30 years, inflation is still the biggest threat to your nest egg. Sit down with a trusted professional who can help you strike a balance between protection and growth.
Not Having an Emergency Fund
Could you comfortably pay an unexpected, major expense in retirement without jeopardizing your financial future? For most of us, the answer is no. Just as you were taught to have an emergency fund in your formative years, it’s even more critical to have one in your retirement years.
It used to be recommended to have 3 to 6 months of expenses saved up in an easily accessible savings account, but now more professionals are recommending at least 12 to 18 months’ worth. (3) This may sound like a lot, but an emergency fund serves two purposes: it covers unexpected expenses and it provides stability during economic downturns. This means you can optimize your portfolio to beat inflation (#3 on our list) while having a safety net to fall back on.
Going Through Retirement Alone
It took decades of strategizing to grow and protect your wealth up until this point. Don’t just “wing it” in retirement and manage your money alone. Having a trusted financial advisor by your side can be the difference between having a retirement fund that dries up and having one you can’t outlive.
Get the Support You Need
Are you looking for comprehensive financial planning that involves strategies to proactively avoid these common challenges? If so, we would love to hear from you! At Stratos Wealth Partners, we take pride in our holistic approach to wealth management and are dedicated to helping clients pursue their long-term financial goals with confidence. To schedule a complimentary introductory call, reach out to us at 330-576-3912 or lguiney@stratoswp.com.
About Liam
Liam Guiney is partner, financial advisor, and client portfolio manager at Stratos Wealth Partners, an independent investment advisory firm providing personalized financial plans to help clients pursue their goals. With over 20 years of experience, Liam is dedicated to walking his clients through their financial opportunities and challenges, simplifying the complex so they can focus on what’s most important to them. Liam is known for building long-lasting relationships and focusing on individual needs to develop strategies that will help his clients prepare for their ideal retirements.
Liam graduated from the University of North Carolina Greensboro with a bachelor’s degree and earned a Master of Science at Wake Forest University. He is also a CERTIFIED FINANCIAL PLANNER™ professional. When he’s not working, Liam spends his free time with his wife, Alice, and their son, Nicholas. You can often find him exercising, golfing, or supporting his favorite community organizations through fundraising and volunteering, such as Catholic Charities, the Make-A-Wish Foundation, and cancer research organizations. To learn more about Liam, connect with him on LinkedIn. Or watch his latest webinar: 5 Questions You Should Answer Before You Retire.
This material was prepared for Liam Guiney’s use. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation.
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(1) How Inflation Impacts Your Retirement Income, https://www.investopedia.com/articles/retirement/052616/how-inflation-eats-away-your-retirement.asp
(2) What Is the Average Inflation Rate Each Year? https://www.zippia.com/answers/what-is-the-average-inflation-rate-each-year/?survey_step=step3
(3) Emergency Savings, https://www.marketwatch.com/picks/suze-orman-now-says-you-need-this-much-in-emergency-savings-and-psst-youre-probably-not-going-to-like-it-01662062527