As you get closer to Financial Independence Day (the day you start taking money out of your retirement accounts), the reality of what was an intangible concept for so many years can be a little stressful. Here are some thoughts and concepts I try to convey to clients as they enter this transitional stage:
Your Investment Allocation may not change as much as you think. We make small changes to your mix between stocks and bonds, not drastic changes so as to minimize drastic consequences. Keep in mind that only a small percentage of your portfolio will be used to provide income each year so it is important to remain invested so we can continue to achieve a real return over inflation for many years to come.
We will continue to carefully adjust and monitor your plan. Your retirement will be very different from that of your grandparents. Plan for and expect adjustments to your withdrawals based upon the performance of your portfolio, life events, and of course inflation. With our retired clients, we re-calculate and recommend withdrawal adjustments each year. The adjustments we recommend are usually designed around the key goal of lifetime income at a sustained standard of living in the face of planned and unplanned circumstances and risk. Sound complicated? It is complicated, but income planning is a big part of our experience, training, and continued commitment to excellence.
Expect your Withdrawal Rate to be uniquely designed to fit your plan. Safe sustained withdrawal rates are a major top topic of discussion among Financial Planning professionals. For many years the standard answer has been 4% of your portfolio balance is a safe rate of withdrawal to maintain lifetime income. I see articles almost daily debating the validity of the 4% guideline as either too high or too low. Regardless, like any standard answer it does not apply to all people in all circumstances. Our planning takes into account MANY factors, some of which include:
*Your desire to pass assets to your kids.
*Long term care planning.
*Life expectancy and family medical history.
*Other income sources and their makeup.
*Your tolerance for risk.
*Planned monthly expense changes during retirement.
These factors play a major role in determining your unique withdrawal rate and any future changes.
Planning for retirement is more fun and less stressful when we take the time to carefully consider all of the important factors. Don’t fly blind! It takes hard work and effort to become comfortable with the reality of your retirement income transition but it’s worth it.
By Rob Schulz