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Establishing a Personalized Retirement Income Strategy


We constantly hear the question, “Do I have enough to retire?” It is always an interesting question as there are many interrelated variables and trends that must be carefully considered.  Understanding these variable and trends is paramount to ensuring one has the highest probability of meeting their retirement goals. Retirement these days is different from previous generations.    Items such as demographic trends, societal changes in taxes and social security, rising healthcare costs, inflation, generational changes in traditional family roles, amongst others, must be accounted for.

Common concerns faced by individuals:

1)            When do I want to retire?

2)            What will I do during retirement?

3)            How much money will I need during retirement?

4)            How do I account for medical expenses?

5)            How long will my money last and how can I be sure I will not outlive my retirement assets?

6)            What amount of assets can I leave to my heirs?

An individual’s retirement budget should assume a reasonable rate of withdrawal.  Other income sources such as pensions, annuities, Social Security, savings accounts, home equity, part-time work, insurance, rent and royalties, etc should be accounted for.  The higher the withdrawal rate is, the greater the probability of running out of money during retirement becomes.  We provide real time retirement analysis and monitoring for our clients to make sure they are on the right path and stay on track. We highlight a few factors that can help maximize assets during the retirement stage:

•              Contribution strategy

For individuals saving for retirement, make sure to maximize contributions to tax deferred and/or retirement vehicles.  The simple principle for this is to defer taxes while you are in a higher income bracket. 

              Withdrawal strategy

Reduce your tax liability by drawing down your taxable assets first before tapping your retirement assets.   In order to reduce the chance of having to sell an investment at the wrong time, structure your portfolio so that your income is created from a variety of sources such as dividends, bond coupon payments, social security, pension and annuities.

•              Do not be overly conservative and beware of inflation

Keeping up with inflation is paramount otherwise you effectively lose purchasing power.  Inflation has been between 2-3% for the last 10 years.  The nominal price of goods and services has increased nearly 30% in the last 10 years. If your assets have not increased at the same pace of inflation then you have been leaking wealth, be sure to adjust going forward.

•              Consider the cost of non-core assets

As an example, think about the cost of maintaining a vacation home and how much it is actually being used.  It may make sense to stay in a five star hotel rather than maintaining the vacation home.

•              Rising healthcare costs

Think about future out-of-pocket health care costs for retirees who do not have employer medical coverage.  Many people underestimate the costs of care and believe that private health insurance or Medicare will cover all the costs.  Out of pocket medical expenses can make up 15% of a retiree’s total expenses.  It is important to account for future medical expenses.

•              Employer stock

Take advantage of Net Unrealized Appreciation. In certain circumstances having company stock distributed to you, rather than rolling this into your IRA will allow you to only pay ordinary income tax on the original basis of the stock rather than the full market value.

•              Count on longevity

Plan on living longer and be conservative on estimating how many years your assets need to last.   There is a greater than 50% chance that one spouse will live to age 90.

•              Consolidation of assets

Make it easier on yourself by rolling and/or consolidating 401K into IRA accounts.  This will reduce paperwork and recordkeeping as well as make it easier to track and evaluate progress.

•              Reduce concentrated positions

Reduce unnecessary risk by diversifying out of any holding that accounts for 10% or more of your overall portfolio.  Greater portfolio volatility is tolerable during the wealth accumulation and growth stage, but during retirement and while drawing down a portfolio, lower volatility is very important. Markets can be volatile, do not allow yourself to get forced to sell investments at a market bottom.

•              Consider wealth transfer

After determining what your core versus your excess capital is, consider wealth transfer or philanthropic strategies to further minimize taxes.  The sooner this is initiated, the better.  For the rest of this year there are estate tax provisions that allow a significantly larger amount of tax-free monies transferred during one’s life to benefit a younger generation.  These valuable provisions are set to expire at the end of this year.

Creating a plan and keeping it current is important.  It is immportant to create and review customized plans on a quarterly basis to ensure one remains  on track to achieve their financial goals and objectives. 

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Comment   |  6 years, 10 months ago from Manhattan, NY