Making Your Savings Last Through Retirement

&l;p&g;&l;img class=&q;dam-image shutterstock size-large wp-image-1071642017&q; src=&q;×0.jpg?fit=scale&q; data-height=&q;720&q; data-width=&q;960&q;&g; Shutterstock

&l;span&g;&l;em&g;This is the third blog in a three-part series that focuses on&a;nbsp;anticipating and planning for retirement,&a;nbsp;based on your current stage of life and expectations for the future.&l;/em&g;&l;/span&g;

Most of us do not wish to work forever, which is why a carefully developed retirement plan is so important. Determining how much to save and the steps to get there are indeed critical components of the planning process. However, with so many unknowns like future tax rates, healthcare costs and life expectancy, many people fail to consider the best way to make their savings last through retirement.

Establishing a strategy for when and how to spend the money you diligently saved and invested can help increase the likelihood that your wealth provides the life and legacy you desire. Working with a financial advisor to incorporate the following details into your financial plan can help you design a path not just to retirement, but through retirement.

&l;strong&g;Create a budget.&l;/strong&g; Routine living expenses and aspirational goals are generally straightforward to project, but ensuring that you have enough cushion for unexpected life events often requires more planning. For example, if you want to maintain your current standard of living in retirement and take a vacation every year, you likely have an idea of what these goals translate to in terms of cash flow needs and can budget accordingly. However, life-changing events like the birth of a grandchild, divorce or health issues are more difficult to anticipate and usually require additional funds. Setting aside emergency reserves can help offset these costs if they arise. The budget you create serves as a good starting point for estimating your monthly withdrawals in retirement.

&l;strong&g;Decide which accounts to draw from first.&l;/strong&g; If you have assets in both tax-deferred and taxable accounts, the order in which you access your funds can impact the life of your retirement savings. It is generally advantageous to delay paying taxes as long as possible by liquidating taxable accounts&a;mdash;or the investments you have made with after-tax dollars&a;mdash;first. If you are able leave your tax-deferred accounts, which were built on pre-tax dollars, untouched until you are required to take distributions, you can accumulate more tax-free savings due to the power of compounding. Of course, your specific tax situation may create an exception, so always consult your financial advisor first.

&l;strong&g;Plan for RMDs and Social Security benefits.&l;/strong&g; Required Minimum Distributions (RMDs) and Social Security benefits may also influence your withdrawal strategy. RMDs are age-based, IRS-specified amounts that you must withdrawal from your retirement accounts beginning at age 70 &a;frac12;. As an exception, Roth IRAs do not have RMDs. Because penalties are assessed for not taking RMDs, required withdrawals should be considered before calculating additional withdrawals.

While Social Security benefits are no longer considered a dependable source of retirement income, any benefits you earn can be used to supplement your personal savings. The amount you receive depends on the date you elect to begin taking distributions, so factors like cash flow needs, health and expected longevity should be taken into consideration to optimize your benefits.


&l;strong&g;Select a withdrawal method.&l;/strong&g; The method you select to withdraw assets from your retirement accounts determines how quickly you deplete your funds. In general, you can choose to make dollar-adjusted or percentage withdrawals. Dollar-adjusted withdrawals begin with a set dollar amount and adjust this amount for inflation each year. With percentage withdrawals, you take the same relative portion of your portfolio&a;rsquo;s value every year. The table below illustrates the differences between these two methods.

&l;img class=&q;size-full wp-image-30&q; src=&q;; alt=&q;&q; data-height=&q;321&q; data-width=&q;713&q;&g; Dollar-adjusted withdrawals vs. percentage withdrawals

While dollar-adjusted withdrawals provide more consistent, inflation-adjusted cash flows, the risk of depleting your assets too quickly increases if markets experience a downturn. On the other hand, percentage withdrawals fluctuate depending on your account balance, so you may need to adjust your spending as your portfolio value declines.

&l;strong&g;Prepare for market downturns.&l;/strong&g; While market movements are difficult to predict, the likelihood of experiencing a negative market environment at some point during retirement is high. A market downturn can be devastating to your savings during the first few years of retirement, especially if coupled with portfolio distributions. However, compounding, which works to your benefit when markets are rising, can build up your portfolio balance to offset the effects of a correction or bear market. If market conditions work against you, you may need to adjust your plans accordingly by delaying retirement to increase savings or finding other sources of income if you are already retired.

As your life changes, so will your financial, investment, and estate planning goals, which is why working with your advisor to develop a comprehensive and adaptive wealth strategy is essential. No matter your retirement and wealth preservation objectives, a detailed plan that considers your evolving financial needs can help you secure a successful future for yourself and your loved ones.&l;/p&g;

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