7 Retirement Strategies to Avoid Outliving Your Money
Worried about running out of money in retirement? In this video, Ed Mahaffy breaks down 7 practical strategies to help safeguard your income and reduce long-term care risks.
- How to shift from saving to generating retirement income
- Why dynamic withdrawal strategies outperform rigid rules
- The power of delaying Social Security benefits
- How the 3-bucket strategy helps to safeguard against market volatility
- Ways to reduce fees and optimize tax efficiency in retirement
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https://clientfirstwm.com/contact-us
Transcript
How to Avoid Outliving Your Money in Retirement
By far the biggest fear today among retirees and pre-retirees is the prospect of outliving their money, and nothing can sink a retirement plan faster than long-term care expenses. What I'd like to offer you today are seven tips for you to consider as ways to avoid outliving your money.
The Reality of Retirement Costs and Advisor Fees
Let me ask you a question. What if your advisor said, “To help you allay this fear of outliving your money, I'm going to cut my fees by one-half percent so you could set aside a reserve account to meet long-term care expenses in the latter years of your retirement”?
Wouldn't hold your breath on that. Let's move on to the seven steps.
Step 1: Shift From Accumulation to Distribution Planning
The first step is to shift from accumulation thinking to distribution thinking and to build a written income plan with guardrails around withdrawals.
Step 2: Use a Dynamic Withdrawal Strategy
Second, use a dynamic withdrawal strategy instead of a static rigid one like 4 percent a year no matter what. Adjust your spending based upon your portfolio performance. Spend more when markets are up and less when markets are down.
Step 3: Delay Social Security Benefits
Third, delay Social Security whenever appropriate to maximize lifetime income.
Step 4: Use the 3-Bucket Retirement Strategy
Next, separate assets into three buckets or accounts.
The first bucket holds several years of living expenses. Investments might include money market funds, Treasury bills, maybe some high-yield savings.
The next bucket is an income bucket with an investment horizon of, say, four to eight years. You might hold Treasury notes, corporate notes, and maybe some high-yield savings as well.
The third bucket holds long-term growth assets such as stocks and ideally is left undisturbed for many years so the magic of compounding can occur. Just knowing that you have three years of living expenses set aside provides peace of mind and eliminates the urge to panic-sell in times of market turbulence.
About Ed Mahaffy and ClientFirst Wealth
If I haven't met you yet, I'm Ed Mahaffy. I've been helping clients retire for 30 years. My team and I have a fee-only retirement planning firm.
Step 5: Optimize Taxes in Retirement
Distribution strategies including tax-loss harvesting, Roth IRA conversion opportunities, qualified charitable contributions, or donor-advised funds can serve to optimize tax bracket management in retirement.
Step 6: Reduce Investment and Advisory Fees
And another way to avoid outliving your money is to reduce structural costs. The elephant in the living room are investment advisory fees, internal expenses of investment vehicles. Believe it or not, reducing investment expenses by just one half of one percent can save hundreds of thousands in retirement. Savings that could offset the cost of long-term care. Negotiating lower fees may be easier than you think as AI has crushed costs in many industries and wealth management is no exception. The only question is whether the savings are passed on to you.
Step 7: Stay Active and Healthy in Retirement
The last suggestion is non-financial in nature, and that is to stay active mentally, physically, and socially. Hobbies, exercise classes, book clubs, and volunteer work, for instance, playing with your grandkids. It's a good idea to try these activities on for size early on, maybe a year before you retire, so you know which ones fit you best. Obviously, the healthier you are, the better your chances of avoiding healthcare-related expenses.
Why Structure Matters in Retirement
Structuring retirement activities can be a bit like being a retirement center director for a resident population of one (you), but it's very important. Work provides identity, social role, daily structure. A PMC study, as well as many others, reveal the risk of depression and other serious health issues that may materialize when structure is absent in retirement.
Conclusion and Call to Action
If you found this video helpful, please like, share, subscribe, or leave a comment. And if you'd like a free second opinion, please click the link below.
https://clientfirstwm.com/contact-us