Saving for retirement requires discipline. However, if you’re still working, it’s relatively easy to make a retirement investment plan. The goal is simply to make more money.
But when you retire, your investment goals can become multifaceted, hierarchical, and downright complicated.
You still want to make more money, but there are many other factors to consider.
Competing retirement investment goals
Adequate return on investment is as important in retirement as it is in working life. However, there are additional concerns. Here, he looks at six competing priorities that need to be balanced for a solid retirement investment plan.
1. Return on Investment and Inflation
So you want to minimize the risk to your savings after retirement. Once you’ve saved enough money, why not turn that asset into cash and start living clean?
There are many reasons, but the most important are: inflation.
To maintain purchasing power, you need money with a rate of return that is at least as high as the rate of inflation.
For example, if you are earning a 3% return on your savings and the inflation rate is 3%, your real return is 0%. The purchasing power of money is flat. Even if you make money, you can’t buy more things than you used to.
(Note: Inflation averaged 2.84% from 1983 to 2023 and averaged 1.83% from 2010 to 2020. Annual inflation is slowing in 2023, standing at 3% in June. (down significantly from 2022 average %).
2. Short-term withdrawal and long-term growth
When you retire, you will likely be using your savings and investments to meet your living expenses. So you wouldn’t want to spend that money on a risky investment that could lose value when you need to withdraw it. However, you need and want money to earn your income.
That’s why many retirees turn to bucket investing strategies. In other words, you invest in buckets of different funds that carry more or less risk. You can keep the money you need for short-term spending in low-risk means, and invest the money you need for long-term growth in greater risk.
You might also want to check out 28 retirement investing tips from today’s financial geniuses.
3. Make money last longer
It’s not just about investing money, it has to last as long as you invest it. no matter how long it took.
according to Social Security Administration: A 65-year-old man is expected to live to an average of 84.2 years, and a 65-year-old woman to an average of 86.7 years.
Planning for such a long life expectancy can put a strain on your retirement funds, especially investment accounts such as IRAs and tax brokerage accounts. Also, it can be confusing to know how much you can safely spend. The longer you live, the less you deplete your savings each year. If you can’t live that long, you can spend more each year.
How much you can safely withdraw from your savings without depleting them depends on factors such as return on investment, inflation, and longevity.
NewRetirement Planner makes it easy to see when your savings will run out. And it shows you exactly how every change you make to your financial profile impacts the end of savings age.
Plus, with Planner’s Monte Carlo simulation, you can see the probability that your money will last.
The blue shaded area is the result of 1,000 runs of optimistic and pessimistic inflation assumptions with a set of potentially changing variables. As a result, inflation-adjusted savings are more likely to hit their target in a timely manner. In the above scenario, the most likely pessimistic assumptions could result in savings falling below the threshold needed to support a retirement lifestyle.
How to access the Monte Carlo simulation: To run Monte Carlo simulations on your plan, first become a PlannerPlus subscriber. PlannerPlus gives you access to advanced planning tools and more comprehensive inputs for more assets and security. You can sign up for a risk-free 14-day free trial. After that, no charges will be incurred.
Retirement Withdrawal: Using the retirement withdrawal tool within Planner can also help. You can 1) analyze how much of your savings you need to withdraw each year to cover your expenses, 2) specify a fixed withdrawal rate, and 3) see your maximum withdrawal amount.
4. Minimize taxes
Taxes can be a big expense in retirement. Withdrawals from traditional IRAs, 401(k)s, and other retirement accounts are subject to income tax at the highest marginal rates.
For example, if you have $1 million in a traditional IRA, the actual cash available from that account may only be around $700,000 depending on your tax bracket.
When you turn 72, you are required to receive distributions from various retirement accounts (excluding the Roth IRA) called Minimum Required Distributions (RMDs). This is an effort by the government to recover taxes that were not paid on contributions to these accounts while in service.
Add to this the taxes on most pensions, pension distributions and monthly payments, and possibly even a portion of Social Security, and your retirement tax rate could be as high as it was in your working life. It is considered that there is a nature.
One of the biggest investment decisions retirees have to make is when to withdraw, which accounts to open and in what order. This affects a wide range of investment issues, but perhaps the biggest is taxes. Especially if your income has declined in your 60s, it makes sense to consider Roth converting some or all of your IRA assets before RMD sets in. For those still working, having a pension or other income sharing plan is very important.
NewRetirement Planner’s Plan Inspector allows you to estimate your tax burden year-on-year, so you can see where your biggest tax burden is expected and how to avoid it.
5. Try to leave a fortune
Some retirees feel that leaving a legacy is a priority. Perhaps you want to benefit your heirs, such as your spouse, children or grandchildren. Alternatively, your intentions may be charitable.
Leaving an economic legacy can be a valid investment goal. Remember that real estate comes in many forms, not just cash and investments. Your property may include property such as your home, other property, and items of value.
Make sure your property plan is up to date, see Property Plans: Coronavirus and the 11 Documents You Always Need.
6. Other priorities
In addition to retirement funds, many retirees want to fund their children’s and grandchildren’s education and charitable causes.
Spending money to reflect your values can help give meaning to your year of savings and investments, as well as your retirement life.
It’s possible to balance these priorities, but first you need to make sure your own spending needs (if you don’t want them) are met.
Tips for meeting all your competing retirement investment goals
Here are some tips for a solid retirement investment plan that will help you achieve all your retirement investment goals.
smart allocation
While retirees need to be careful about the level of risk they’re taking on their investments, they need growth to stay ahead of inflation and not outlive their money. This means an allocation to equities that balances the need for growth and minimizing downside risk. When it comes to risk, retirees don’t have the time to make up for huge losses like people in their 30s and 40s.
try bucket plan
Investors can consider a “bucket approach”. This suggests setting aside a certain portion of the portfolio for cash needs over a period of time (perhaps equivalent to 1-3 years worth of cash needs) and then setting aside buckets for intermediate growth and earnings. I mean It’s also for long-term growth. The latter bucket will consist mostly of equities, while the middle bucket will likely consist of a combination of bonds and profit-earning stocks. However, everyone’s situation is a little different.
Consider different types of bucketing strategies and use the NewRetirement Planner to assess if it’s right for you.
Plan your retirement income as well as your investment
“The most important thing you can do for retirement is planning, specifically your retirement income plan. Planning is much more than choosing which investments to make. Investing is the last part of the plan: the icing on the cake.It should only come after you have the main meal menu and the cake is baked,” says founder and CEO Dana Anspak. Sensible Money LLC (and one of MarketWatch’s RetireMentors).
To learn more, read our insightful tips on How to Plan Your Retirement Income.
Create a retirement investment plan and keep it up to date
Investing for retirement is complex, and you must juggle between achieving enough growth to ensure your money lasts, managing your tax burden, and controlling downside risks. Planning and regularly reviewing your portfolio and overall situation is essential to ensure financial success in retirement.
A good online retirement planner can also help you make a good initial retirement investment plan and monitor how well you are managing your resources.
F.To learn more, read Why an Investment Statement Is the Secret Weapon You Need in Retirement Planning.
Get reassurance from someone you trust professional advice
Many of us struggle to keep investing when our only goal is to make more money. Things get a lot more complicated after retirement, so I suggest you seriously consider using a financial advisor. NewRetirement puts you in touch with pre-vetted and qualified professionals with expertise in investing in retirement and balancing these competing priorities.
A few years ago, talking to a financial planner was scary and confusing. However, since the advent of digital technology and communications, it has become easier and cheaper to get quality, trusted advice without the sales pitch.