The Top 5 Financial Planning Challenges In The First 10 Years Of Retirement

Tuesday, March 17, 2020 | Leave a comment

By Darrell Bryant

Retirement is a milestone unlike any other. You leave the comforts of a steady paycheck and structured schedule and embark on a journey into the unknown of finite resources and endless free time. After decades of working and saving, now it’s time to hopefully relax and see if all your hard work will pay off. Given the opportunity, most retirees will agree that they are actually seeking a ‘stress-free” existence moving forward. Multiple, consistent, predictable income streams seem to be a key component toward that objective.

We’ve found that most retirees face the same 5 financial planning challenges during the first 10 years of retirement. If you want to experience a fulfilling retirement free of worry and regret, listen up.  

1. Not Creating A Withdrawal Strategy

Financial planning doesn’t stop once you enter retirement. Capitalize on your wealth by deciding the most tax-efficient way to withdraw funds in your golden years. 

While a successful retirement is earmarked by multiple income streams, be aware that different financial accounts are taxed at different rates. Traditional IRAs and 401(k)s get taxed at the ordinary income tax rate when you withdraw. Roth IRAs and Roth 401(k)s are taxed beforehand, so the money is withdrawn tax-free. Funds in a taxable investment account are taxed at the capital gains tax rate, which is different than your ordinary income tax rate. 

As you can see, calculating the best time to pull from each account is enough to give anyone a headache. But the last thing you want is to get hit with a hefty tax bill.

Create a withdrawal strategy with the help of a trusted professional who can make sure you’re withdrawing funds at a sustainable rate and that you’re doing it in a tax-efficient way.

2. Overspending In Retirement

Many people spend their retirement years doing all the things they never got to do when they were working—starting a passion project, remodeling the house, traveling the world, and more.

It’s easy to underestimate the amount of money you’ll spend those first few years when you don’t account for all these “extras.” Overspending, even for a short period, can shave years off the longevity of your assets. My advice? Create a spending plan. Calculate your monthly income given your withdrawal strategy (See #1) and then create a budget. 

3. Ignoring Inflation

Another major challenge we see new retirees face is the desire to play it safe in the stock market. This does more harm than good as it leads to inflation risk. 

In 2014, the CMS estimated that healthcare expenditures inflated by 5.4% overall, compared to the average inflation rate of 1.6%. (1) What does this mean? Retirees are more likely to feel the effects of inflation due to mandatory expenses, such as healthcare costs. 

As tempting as it may be, resist the urge to worry about short-term stock market volatility. With a retirement that could easily last 20 to 30 years, inflation is still the biggest threat to your nest egg. Sit down with a trusted professional who can help you strike a balance between protection and growth. 

4. Not Having An Emergency Fund

Could you comfortably pay an unexpected, major expense in retirement without jeopardizing your financial future? For most of us, the answer is no. Just as you were taught to have an emergency fund in your formative years, it’s even more critical to have one in your retirement years. 

Most professionals recommend having at least 12 to 18 months of expenses in an easily accessible savings account. (2) This may sound like a lot, but an emergency fund serves two purposes: it covers unexpected expenses and it provides stability during economic downturns. This means you can optimize your portfolio to beat inflation (#3 on our list) while having a safety net to fall back on. 

5. Going Through Retirement Alone

It took decades of strategizing to grow and protect your wealth up until this point. Don’t just “wing it” in retirement and manage your money alone. Having a trusted financial advisor by your side can be the difference between having a retirement fund that dries up and having one you can’t outlive. We at D. Bryant Retirement Strategies would be honored to walk with you on your retirement journey. If you’d like a complimentary consultation, call us at (402) 932-2141 or email contact@dbretirement.com.

About Darrell

Darrell Bryant, CFS®, CAS® is Omaha’s Retirement Strategist. As the founder of D. Bryant Retirement Strategies, he focuses on helping individuals and couples nearing retirement do so successfully. Along with more than 30 years of experience, he received the Certified Fund Specialist (CFS®) designation and a Certified Annuity Specialist (CAS®) designation from the Institute of Business & Finance. Passionate about helping as many people as possible in his community, he hosts Retirement Strategies Radio, heard Saturday mornings at 8:00 a.m. on 1110 KFAB. He has also written articles on financial planning that have been featured on Fortune.com, FoxBusiness.com, Money.com, and in the Midland Business Journal. To learn more, visit his blog, his website, or connect with him on LinkedIn.

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(1) https://www.investopedia.com/articles/retirement/052616/how-inflation-eats-away-your-retirement.asp

(2) https://www.thebalance.com/how-much-emergency-savings-do-retirees-need-4582473

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