Planning for a Comfortable Retirement

Action plan backgroundAll retirement planning strives to provide a mix of resources for enjoying life, alongside resources that can cover unforeseen costs and events, plus expectations about inflation. While there is much under your control, early consideration and planning will result in the most favorable result.  Below are 4 considerations that can help your retire comfortably.

  1. 1. Understand revocable versus irrevocable choices – Consider most carefully the financial choices that can’t be reversed. Starting Social Security withdrawals is mostly irrevocable. Recent changes in the regulations have reduced options. Certain decisions about how to draw pension income are also irrevocable. Workers may be asked to elect whether to take pension funds in a lump sum or in monthly payments. Once done, it can’t be changed. Those concerned about outliving their assets might like the reliable monthly payment for life; whereas, those who want to place the assets in a different part of their portfolio often elect the lump sum. Some housing decisions are also irrevocable, such as certain senior living environments where the retiree may pay a nonrefundable down payment for entry.

2. Spend some of it now and stay liquid. Cash flow in retirement takes the form of “spending down” saved assets, rather than accumulating and increasing income. You can’t foretell life expectancy, the future cost of health problems, or inflation, so income preservation and cash flow must be managed carefully. Pre-retirees should consider springing for needed repairs or purchases while they are still earning money. Avoid being forced to make large withdrawals from your portfolio in a down market by using a “bucket strategy” where investors keep a layer of liquid reserves so they don’t have to sell shares. This allows you to stay flexible if income from distributions is low, tapping reserves rather than eating into equities.

3. Consider tax implications and be sure to diversify. Consider the tax implications of required minimum distributions which start at age 70½. Required minimum distributions (RMDs) are taxed as ordinary income. At the same time RMDs kick in, retirees lose the ability to make pretax contributions to retirement accounts, commonly used to lower taxable income. Funds in brokerage accounts are taxed at capital-gains rates versus ordinary income-tax rates.

4. Know your benefits and how choices affect heirs. There may be a “non-qualified deferred compensation” option as an alternative to a 401(k) for higher earners since the 401(k) match is currently capped at $265,000. Pre-retirees should also consider choices for using annuity and pension plans. These plans often require a choice between withdrawals in the form of a “straight life” income stream or over a multiyear term. In straight-life, they get the maximum allowable monthly payment for the rest of their lives, but on death, their spouse and heirs get nothing.

It is highly recommended that you enlist the services of a certified financial planner. They will have the knowledge, experience, and skills to assist you with these decisions.


Rebecca Carfi

The Financial Sage

Join Rebecca Carfi, The Financial Sage as she shares relevant financial information and wisdom garnered from her deep and broad career in Financial Services and Management.

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