Retirement Planning

Will you out live your retirement savings?

The answer to this question will determine the success of your retirement plan.

Planning is the process of creating a realistic strategy to fund your retirement. This process balances current financial needs with the unexpected many years into the future.

A successful retirement is the highest financial priority for many people. Because of the long-term nature of retirement, it is often the most difficult financial goal for which to plan.

Items to consider when creating a retirement plan:

Longevity

The average life expectancy is now between 82-86, and it is likely you could live 20-30 years in retirement. Your plan must be flexible enough to account for a long retirement.

Tax deferred vehicles allow you to make investments today and defer paying taxes on investment growth until the funds are withdrawn. This typically occurs in retirement when you may be in a lower tax bracket. Because it could be many years before you need to withdraw these funds, tax deferred accounts allow for many years of potential investment growth without taxation. Contributions made on either a pre-tax or tax deductible basis reduce your current taxable income, potentially allowing you to invest more. And, because growth is tax-deferred, your balance has the potential to increase more quickly than if you had placed your money in a taxable vehicle.

Expenses and Inflation

Inflation is always a powerful enemy in any retirement plan, especially for a retirement that could last multiple decades. Your living expenses could increase multiple times over a long retirement. And, certain expenses such as medical expenses could easily outpace inflation.

Withdrawals

Almost everyone will need to augment their retirement income with withdrawals from their portfolio assets. Many recent studies have indicated the importance of reasonable and sustainable withdrawal rates. A generally accepted withdrawal rate is 4%, but every case is different.

Asset Allocation

It is always important to have a reasonable asset allocation, but it is especially important in or near retirement since your time horizon to recoup any losses is shorter. A proper allocation that balances income needs with growth needs is critical. Asset allocation does not guarantee a profit or protect against a loss in a declining market.

Other Goals

Other financial goals (purchasing a vacation home or subsidizing your parents’ care for example) will impact your retirement.

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