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When thinking about retirement, you might conjure up images of traveling, relaxing on a beach or spending the day golfing. However, we understand that there may be several uncertainties that can thwart your retirement plans.
If you take early retirement or have a family history of long life, the possibility of outliving your portfolio could be a real concern.
Relying solely on the government to fund your retirement could be a mistake. Social Security and Medicare benefits could be reduced – even if you’re already collecting.
Most Americans have not saved enough for retirement. In fact, the National Institute on Retirement Security says the average working household has “virtually no retirement savings.”
Even if you have saved and invested, inflation can wear away the value of your savings and shrink your investment returns.
Market changes increase and decrease the value of your portfolio. If the market drops early in your retirement, your portfolio may not be enough to handle regular withdrawals.
One of the most misunderstood concepts in retirement planning is withdrawal rate – the percentage of your investment portfolio you take out annually in cash. The challenge is in figuring out how much money you can spend so you don’t have to worry about running out. Many think you can withdraw a rate equal to what you expect your long-term returns to be. But it’s not that simple.
Because many of us need stock market allocations in our portfolios, and stock investments fluctuate in value, withdrawing at a rate equal to your expected long-term investments could cause you to dip into your principal portfolio value. And you risk running out of money if you withdraw too much each year.
You can best prepare yourself to handle these uncertainties by developing a multi-tiered approach to retirement.
1. Diversify among different retirement options such as 401(k) and defined benefit plans, Social Security and outside investments, like Roth IRA, traditional IRA and after-tax investments.
2. Invest in retirement options with different tax consequences, market fluctuations and interest rate sensitivity to increase your likelihood of a happy retirement.
3. Working longer can help stretch out your retirement dollars. If you begin receiving Social Security benefits later, you receive more money each month. For each year you delay, your benefit grows by 8 percent.
4. Meet with a financial advisor to figure out how much money you will need in retirement, what products can help supplement your retirement income and how to create and stick to a plan to help you achieve the retirement you want.
Call us, and we’ll help you develop a multi-tiered approach to best handle the uncertainties of retirement.
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Investing and wealth management products are not FDIC insured, have no bank guarantee, may lose value, are not a deposit and are not insured by any federal government agency.