When it comes to retirement, everyone’s top concern is running out of money. But how do you ensure that your portfolio is designed to last as long as you do and beyond? In this article, we share the most successful retirees and how they’ve built plans for true success in retirement. First off, it’s important to recognize that when retirees succeed in making their retirement funds last forever, it is not by accident. The most successful retirees are proactive in their planning and do not let unexpected costs derail their retirement. Keep reading to learn how to make sure your retirement fund outlasts you!
Diversified Investments
Though this comes up everywhere in the financial world, it merits a mention. We cannot stress enough the importance of diversified investments. Even in the last few years, if you think about the wild market swings around the Covid-19 pandemic, the dip in 2022, and recovery of 2023, markets move a lot. This is where diversified investments really make a difference.
For example, in 2022 bonds and stocks were down 20-40%, and many Americans did not have diversified portfolios, so their entire portfolio was down at that time. For many, this wasn’t an issue, simply because they weren’t retired and drawing on those funds. However, when you do retire and you’re living on your portfolio, you have to ensure that you have assets that are going up when the market is going down or at a minimum, hold stable during market dips. This is essential because when you’re drawing heavily from your portfolio in a down market it can be a death spiral.
Tax Diversification
One of the key ways to ensure your retirement funds will last as long as you do is having diversification, and not just diversification in investments, but also tax diversification or a tax efficient plan. Many retirees plan to get the return they want, up to 18%, but never put a plan in place to manage their taxes, so that they get to keep more of that return. There are lots of people who grossly overpay on their Medicare premiums, taxes, and Social Security, because they haven’t done any proactive planning on how they’ll hold onto more of their wealth.
As a reminder, the more you keep, the more money you’ll have working for you through the years. This all boils down to your net income. Having a tax efficient plan for how you’re going to live on your income, keep your returns, keep Uncle Sam away from your Social Security check as much as possible are all important steps to ensuring your retirement fund lasts as long as you do.
Coordinated Withdrawal Strategy
Having a coordinated withdrawal strategy is another key element of making sure your retirement funds last as long as you do. Having a real income plan is crucial once you start pulling from your portfolio. When you want to take a vacation or make a big purchase, you should be able to input that spend into your income plan and see if it makes an impact on your larger retirement horizon, in 10 or 20 years. At REAP Financial, we do this for families every week to help them understand how their choices impact their long-term retirement so they can spend with confidence. That is the essence of a true withdrawal strategy.
Note that your withdrawal strategy is not simply your budget, though your budget is undoubtedly the most important number in your retirement plan. A true withdrawal strategy accounts for the number you need to live on, but the accounts you’ll need to use to supplement that number. If you have IRA and 401k money, that is taxable. If you have bank cash, that’s money you’ve already paid tax on. If you have Roth IRAs, Roth 401ks, or HSAs, that money will never be taxed. With all that in mind, you need to have a plan as to what accounts you need to draw from first to control your tax bracket and make sure you don’t exhaust one too early, thereby limiting your options later. This coordination between outflow and where you’re drawing money from is what successful retirees get right. At REAP Financial, we help retirees implement this so they can truly enjoy retirement, without worrying about running out of money.
Plan for Your Healthcare and Medicare Cost
If you’re going to retire before 65 or Medicare age, you need to plan for what it’s going to cost. It is entirely possible to do it; many of our retirees do. However, you have to plan for what it is going to cost, anywhere from $800-$1000 per person. You may get on Cobra, Obamacare or something else. No matter what you choose, you must have an income plan that accounts for that cost so you can see what the long-term impact of it is.
When it comes to Medicare, many people are going to pay more based on their income. It is important to know how much you’re likely to pay for Medicare. We can do this analysis for you at REAP Financial, so you know what you and your spouse are likely to pay for Medicare over your lifetime. Remember, your Medicare premiums are dictated by your income, not your net worth. This means if you’ve done a good job saving for retirement, you’ll likely be paying more than your neighbor for the same coverage. Make sure you get a clear picture of how much you’re going to spend on Medicare, since it can be 100,000’s and really whittle away your Social Security check.
Proper Planning to Make Your Retirement Last Forever
In this article, we’ve gone over the top four things you need to plan for to ensure your retirement portfolio lasts as long as you do. Planning for these things and having a coordinated retirement will not only ensure the longevity of your portfolio, but also give you confidence to spend and enjoy your retirement. If you want to learn more about these strategies, check out another one of our articles on how to make sure Medicare doesn’t derail your retirement.
Retirement Planning with REAP Financial
REAP Financial is your trusted partner in retirement planning and wealth management, specializing in the unique needs of retirees and those nearing retirement in Austin and Georgetown, Texas. Our team of experienced fiduciary advisors offers personalized strategies that cover retirement planning, investment management, estate planning, and tax-efficient solutions. We act as the CFO for your financial future, focusing on preserving and growing your wealth to ensure a secure and enjoyable retirement.
With a commitment to transparency and personalized service, REAP Financial creates tailored financial plans that align with your retirement goals and lifestyle. Whether you need guidance on tax diversification, coordinated withdrawal strategies, or long-term retirement planning, our expert team is here to support you every step of the way. Contact us today to learn how we can help you achieve a confident and lasting retirement.
Phone: (512) 249-7300
Our Main Office Address
REAP Financial
9414 Anderson Mill Rd #100
Austin, TX 78729
