Outliving your savings is most retiree’s biggest fear. Running low on income in retirement could force you to make lifestyle changes or, in a worst-case scenario, even re-enter the workforce.
Fortunately, with some planning and discipline, you can set yourself up for a comfortable retirement. Instead of spending your time worrying about running out of money, use these three tips to help ensure your money lasts your lifetime:
Add Growth to Your Portfolio — Not Just Income
A great way to help make your retirement funds last is to diversify your income. The truth is, no matter your net worth, your income will always be your greatest wealth-building tool. That’s why a solid income stream is good, but having multiple streams of income is better.
Diversified income streams act in much the same way that diversified investments do. They allow for less demand and stress on any one income source, so if an unforeseen event were to occur, the remaining income streams should be able to pick up the slack.
One strategy to consider is to invest excess cash for growth (stocks) instead of fixed income (bonds). This may sound counterintuitive since retirees tend to invest more conservatively to maintain a steady income. But, as bond yields remain historically low and inflation reaches new highs, many experts have expressed concerns over the sustainability of retirement investments with a larger allocation toward bonds.
You certainly need the fixed-income component, but it’s important to consider including investments that have a greater growth potential to keep up with inflation and maintain your ability to withdraw funds each year.
Continue to Earn an Active Income and Avoid Overspending
Do you know what you will do with your newfound free time in retirement? Many people start by pursuing the things they didn’t get to do during their working years — travel the world, pick up a new hobby, remodel their home, and so on.
You may want to pursue a passion, become a freelancer, or work for a nonprofit during retirement. You will earn less than what you’re making now, but these options often provide flexibility and an active income that will help keep your retirement savings intact for longer.
Remember, most people underestimate how much money they’ll spend in those first few years of retirement. With so much extra time on your hands, it’s easy to make many little purchases that add up over time. You can avoid overspending by creating a detailed (but realistic) budget for your retirement. Budgeting for extra expenses like vacations or hobbies can help you know how these expenditures will affect your nest egg before you follow through with your plans.
Create a Withdrawal Strategy
How you take your distributions can make all the difference when it comes to withdrawing from your retirement accounts. Your retirement income sources are likely produced from various assets, including employer-sponsored retirement plans, Social Security, personal IRAs, or other income-generating investments. Each asset has different tax ramifications, and properly structured investments can help lower your tax burden if you plan how and when you’ll withdraw from each.
For example, most people will receive Social Security benefits during retirement, but 85% of your Social Security income can be taxed at your regular tax rate if your income exceeds a certain amount.
Regarding your personal savings, a $50,000 withdrawal from a Roth IRA will have a wildly different tax impact than that same distribution from a traditional IRA. If you blindly withdraw your money, you could trigger an avalanche of higher Social Security taxes, investment surtax, capital gains taxes, and even higher Medicare premiums, which will eat away at the funds that were supposed to carry you through retirement. Creating a withdrawal strategy and a tax plan can help you maximize your retirement funds and improve your financial situation.
Need Help Making Your Money Last?
There’s no single answer to when you can retire or how much money you need to retire comfortably, but there are ways to improve your financial stability. At Black Walnut Wealth Management, we’re here to help. If you would like to learn more about how to manage your money through retirement, we’d love to hear from you! Schedule a 15-minute introductory meeting by calling us at (231) 421-7711 or using our online calendar.
Eric Braund is the Founder and Chief Financial Officer at Black Walnut Wealth Management, a financial advisory firm providing financial counsel and fiduciary investment services to individuals, families, and private foundations throughout the Traverse City and Northern Michigan region. He is a CERTIFIED FINANCIAL PLANNER™ professional and a Chartered Retirement Planning Counselor™ with 25 years of experience. He also has a bachelor’s degree in finance from Hillsdale College. Braund is passionate about offering services rooted in hard facts and sound reasoning combined with meaningful, long-term relationships so that his clients can experience less stress and have more time and energy to invest in what they love.
Braund is a Northern Michigan native who truly enjoys all the area offers, including hiking, biking, swimming, skiing, volleyball, and boating. He loves spending time with his family — his wife, Jodi, and his two children — and maintaining a balanced life. To learn more about Eric Braund, connect with him on LinkedIn.
Recent Insights from Black Walnut Wealth Management
- When to Claim Social Security
- How to Choose a Financial Advisor
- Recessions and Bad Moods. Six Ways They Are Similar
- After Your Spouse Has Passed: Your Financial Guide
- How to Protect Your Money When Traveling Abroad