It’s no secret that a big part of success in retirement is your investment strategy. When you’re invested before retirement, you’re likely following a different strategy than you should be post-retirement. To set yourself up for success, you need to craft a winning strategy, by positioning your investments to win in retirement. Keep reading to learn more about how to build your post-retirement investment strategy and a behind-the-scenes peek at something few retirees consider but everyone should!
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1) Take Emotions Out of Retirement Investing
Having a winning strategy for your investments starts by making sure you remove emotional decision-making from the table. For example, your investment strategy should take market variability into account. When you’re investing in your working career or earlier years, market downturns don’t tend to impact you, since you’re investing for your future self. Generally, in those cases, if you continue to invest and do not allow your emotions to dictate your investments, the market will rebound in time. However, if you panic and move your money, you may find your account significantly less valuable when the market comes back.
This perfectly demonstrates why taking emotions out of the equation is critical to a winning investment strategy. In fact, this is why so many successful retirees work with fiduciary advisors, like our team at REAP Financial. You want to have confidence that your portfolio is strong in retirement, without having to check in on it all the time.
2) Having an Effective Investment Mix
When you build your investment portfolio, you need to have a mix of investments that do different things for you. This means you need diverse investments from a gain and loss perspective, but also from a taxable and non-taxable perspective. There are a lot of different types of investments you can hold in different accounts, spanning from conservative to risky. In this case, you should think about risk as a tool in retirement. When you don’t need risk, in many cases, you want to get rid of it because it’s costly. However, in the current environment, with high inflation and high cost of living in many places, putting all your money in savings or checking accounts is not a sustainable long-term plan. This means that you’ll still have to take some risk in your retirement.
When you’re in retirement, you want to have managed risk. This means that you need to have an investment mix that does different things. If the market is going down, do you have something in your portfolio going up? If the market is going up, do you have enough skin in the game to see meaningful growth on par with the market? We want you to be protected in both cases. There is no reason to be unprotected, since there are unique tools many retirees are unaware of, but can be part of a very successful retirement strategy. In fact, we counsel many of our clients at REAP Financial to follow some of these strategies, outlined below:
Multi-Year Guarantee Annuities
There are many different types of annuities out there. The wealthier you are, the less likely it is you’ll need an income, index or variable annuity. However, you may want a multi-year guarantee annuity. These annuities work very similarly to CDs and come to 1,3,5, and 10 year duration. Generally, we suggest clients favor the 5 to 10 year bucket. These assets pay a fixed rate of return. As of 2024, we’re seeing rates around 6%, which will pay out annually at that fixed rate. At the end of your terms, you just cash out.
While this might sound like a CD, there are some key benefits to a Multi-Year Guarantee Annuity (MYGA) which are unique. First, these assets are litigation proof, meaning they will not be subject to claim in the case of litigation. Secondly, they give you more control over your tax bracket vs. a CD. For CDs, you will receive a tax form and be taxed on the amount of your CD, even though you can’t touch that money. With a MYGA, the money will grow tax-deferred, allowing you to roll your MYGA over at the end of your term to a new MYGA. This enables you to continuously defer the tax to future years, if executed correctly, and helps you control your tax bracket. In your investment mix, a MYGA would provide steady, consistent growth and tax efficiency. This is especially powerful, since we all know it’s about what you keep, not what you net.
Real Estate
Another strategy we often discuss is real estate. Real estate can be bought in IRAs, brokerage assets, and more. Real estate has been shown to be quite steady in comparison to the equity market. However, even if you want to invest in real estate, you want to make sure your portfolio isn’t all brick and mortar. You still need liquidity in retirement. Even so, real estate can be a great diversifier for your portfolio to help make sure you have assets that won’t depreciate when the market is going down.
Buffered ETFs
This is one of the strategies many retirees don’t know about. There are a lot of different investments in your 401k and IRAs, such as mutual funds, stocks, and ETFs (exchange traded funds). You can actually get buffers on these EFTs that provide downside protection, which allows you to be in the game with a lower risk profile. For example, if you have a 10% buffer in the S&P 500, these buffers can give you 10% down protection. This means that if the market fell 12%, your portfolio would only suffer by 2%. Now, we can see up to 15% and 25% buffers, which we use in the portfolios of our successful families.
However, buffered ETFs aren’t all upside. The deeper the buffer you have, you’ll also see lowered growth opportunity. When you have a buffered ETF, it also imposes a discount on how much you can grow. For example, if the market were up 15%, your portfolio would only experience a 5% gain. So, using this strategy can de-risk your portfolio to a certain extent, but it is a balancing act. We have families that utilize different buffers as part of their portfolio, alongside a wide mix of other assets with no upside growth limit.
3) Manage Your Ordinary Qualified Dividends
Since stocks, mutual funds, and exchange traded funds are all different in the tax landscape, you need to be mindful, especially with ordinary qualified dividends. If you have dividends coming off of your portfolio, we want to make sure you’re not paying tax on money you’re not using. Oftentimes, you’re just reinvesting this income, but you have to pay tax on it anyway. One of the best ways to reduce your tax burden while working and in retirement is to manage your ordinary qualified dividends.
As the name suggests, ordinary dividends are taxed at ordinary income rates. However, qualified dividends are taxed at favorable capital gains rates, like 15-20%. You have to hold these stocks or dividend producing assets for a minimum of twelve months for them to qualify as qualified assets. Oftentimes, we see families who have a buyer or broker buying and selling in their accounts throughout the year to drive growth. However, constant buying and selling doesn’t always make sense, since it can generate fees and taxes. You want to question whether your strategy is benefiting your long-term plan, when you consider taxes. It is extremely important to have a tax efficient investment strategy because it doesn’t matter what you make if you can’t keep it after taxes.
4) Focus on Your Retirement Budget
If you want to have a successful retirement, you must focus on the most important number in your portfolio: your budget. Your budget is the most important number in your retirement plan, since it doesn’t matter how much you save if you can’t sustain the number you need to maintain your lifestyle in retirement. Many people miss this crucial step, spending up to $10,000 or $12,000 a month without realizing that their millions in the bank won’t sustain that type of withdrawal rate throughout retirement.
If you want to get started today, make your budget! You’ll need different budgets for pre and post-retirement, since things will change over time. For example, your transportation and food costs may change. You may adopt new hobbies or start a small business on the side. These changes are the reason you’ll need a new budget after you retire. Once you have a budget established, we can plug that number in and see if your portfolio can maintain that, assuming a conservative rate of return and inflation rate. This is one of the easiest ways to see if you’re set up for success in retirement. When you reach retirement, you don’t want to worry about keeping to a budget, but planning for one and monitoring your spending is crucial for a successful retirement.
To learn more about why your budget is a crucial part of your retirement plan and other best-in-class retirement information from REAP Financial, visit our YouTube channel or our website, reapfinancial.com/blog, for more information!
Are You Looking for Guidance on Setting Up Your Retirement Plan?
If you’re located in the Austin, Texas area and you’re looking for a retirement planner near Austin, TX, our team at REAP Financial would love to discuss how we can help you plan for the best retirement. Partnering with REAP Financial for your retirement planning means choosing a team that comprehensively understands the challenges and opportunities of retirement. We specialize in serving high-net-worth individuals who have been diligent retirement savers, ensuring your retirement plan aligns seamlessly with your lifestyle goals and financial aspirations.
Call us today at (512) 249-7300. or schedule a one-on-one, 15 minute call with Fiduciary Adviser in Austin here: reapfinancial.com/contact.
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Austin, TX 78729
