Stages of Retirement Income Management

Stages of Retirement Income Management

September 08, 2023

Managing your money effectively during retirement requires a combination of strategic decisions and a solid financial plan. Let’s explore some key strategies to help you maintain financial control throughout your golden years.

Controlling your finances during retirement can directly influence your quality of life and peace of mind during your golden years. Seventy-one percent of nonretired adults are at least moderately worried about being able to fund their retirement. This includes 42% who say they are very worried.

By controlling your finances at every stage on your road to retirement, you can help safeguard against financial stress, protect your hard-earned nest egg, and look forward to the retirement you deserve. 

Creating and Managing Your Portfolio

Retirement income management is all about helping to ensure your retirement savings provide enough income for your needs and that you don’t outlive your assets. This starts with setting up and managing a portfolio that's right for you. 

Creating retirement income involves a mix of savings, investments, and sometimes continuing income streams that can sustain you during the years when you're not working. Here are some common strategies and tips to consider as you transition into your golden years. 

Pre-Retirement Planning

As you near retirement, you need to think about how you wish to spend these years. After all, with a nation living longer than ever, your retirement could last decades. Once you decide your desired lifestyle (including where you wish to retire and the standard of day-to-day living you wish to maintain), you need to calculate how you will get sufficient income to last your golden years. Some key strategies as you approach retirement include: 

  1. Social Security: Make sure you understand how much Social Security income you'll receive and how your claiming age impacts your monthly benefits. It's worth remembering you should not rely on Social Security as your main source of retirement income. The Social Security trust funds that about 67 million Americans rely on for benefits are scheduled to be depleted in 2034, one year earlier than was projected last year, according to the annual trustees' report released by the Treasury Department. Which amplifies the need to generate multiple streams of income asides from Social Security. 

  2. Pensions: If you have a pension plan through your employer, find out how much you can expect to receive and what the payout options are.

  3. Savings: Make sure to set aside money in a savings account for emergency expenses. You should aim for 6-12 months of expenses stashed away. See how you can build and grow your emergency fund here. 

  4. Tax-Advantaged Retirement Accounts: Contribute to retirement savings accounts like 401(k)s, 403(b)s, or IRAs. Max out contributions if possible.

  5. Investment Portfolio: Diversify your investments across different asset classes (e.g., stocks, bonds, real estate) to reduce risk and potentially increase returns.

  6. Debt Management: Try to minimize or eliminate high-interest debt before you retire.

  7. Healthcare Planning: Consider future healthcare costs and think about options like Health Savings Accounts (HSA) or long-term care insurance. Furthermore, the biggest threat to your retirement nest egg is Long-Term Care costs. Despite an aging population, only 7 percent of adults over 50 have an LTC insurance policy. Without proper insurance, you can expect to pay $9,034 per month for a private room in a nursing home. In contrast, in 2023, you can expect to pay anywhere from $79 to $533 per month for a long-term care insurance policy. 

Generating Retirement Income

It's important that the growth of your investment portfolio outpaces inflation, but you should balance that need for growth against the risk of exposing your savings to excessive market fluctuations. A few strategies to make your money work for you include: 

  1. Withdrawal Strategy: Create a strategy for withdrawing from your various accounts. The commonly cited "4% rule" suggests withdrawing 4% of your portfolio in the first year of retirement and adjusting for inflation thereafter. However, if you want to be 100% sure you won't run out of money, following the 4% rule likely isn't the best choice. Not only is it an older rule, but it also doesn't account for changing market conditions. In a recession, it's probably not wise to step up your withdrawal amounts; you may even want to reduce them slightly. But when the markets are doing well, you might be able to withdraw more than 4% comfortably.

  2. CERTAIN Annuities: Some people opt for annuities, which provide a guaranteed income stream for a certain period or for life. However, not all annuities are built equal, and the wrong annuity type can cost you greatly down the line. For example, income annuities may come with limited or no access to assets and withdrawal penalties that can impact your ability to take the money you may need. Listen to our podcast on Bad Annuities here to learn more.

  3. Real Estate: Owning and renting out property can provide a steady income stream. Real Estate Crowdfunding allows you to invest in large real estate projects with a smaller amount of money. Furthermore, REITs (Real Estate Investment Trusts) can provide income through real estate ownership without requiring you to manage properties.

  4. Income Producing Investments: Income-producing investments such as stocks that pay dividends, bank products like CDs and bonds are important in retirement because once you stop working you typically need this money to live on. Growth investments, such as growth mutual funds and individual stocks that are expected to grow at a faster rate than their peers or overall market. They tend to come with greater price fluctuations than income-producing investments but are often recommended by financial professionals to help your retirement portfolio keep pace with, or ideally outpace, inflation.

  5. Tax Planning: Tax efficiency is an important consideration for high-net-worth investors, as taxes can have a significant impact on investment returns. Be strategic about which accounts to draw down first to minimize tax liability. Check out our recent blog on 'Taxes You Should Know About in 2023' here.

  6. Portfolio Rebalancing: Periodically rebalance your investment portfolio to ensure it aligns with your risk tolerance and income needs. This not only keeps you on track to meet your goals, but it may also enhance your portfolio's returns. Learn more about evaluating your Risk Tolerance here.

Ongoing Management

Retirement income planning isn't a one-and-done task. With the fast-paced nature of the financial markets and inflation, it's easy to lose sight of your long-term financial objectives and get caught up in short-term fluctuations. That's why it's essential to periodically assess your investment portfolio to ensure it's well-positioned to achieve your financial goals. Most importantly, it will provide you with a framework to identify potential gaps and blind spots in your investment game plan and adjust as necessary based on your lifestyle needs, market conditions, and any changes in laws or regulations that could impact your retirement income.

If doing an investment portfolio review becomes overwhelming on your own, talk to your financial advisor, who has the experience you need. This will help you make more informed decisions that are tailored to your personal financial situation.

Working with Agemy Financial Strategies

Retirement Income Management requires careful planning, ongoing assessment, and strategic decision-making. With the right approach, you can make the most of your hard-earned retirement and confidently embrace the next chapter of your life.

For over 30 years, Agemy Financial Strategies has helped our clients plan and prepare. This way, when the unforeseen occurs, our clients are uniquely positioned for success. We work hard to deliver a dependable retirement income strategy in any market, so you can enjoy the “best” of your lives during retirement.

As Fiduciary advisors, we follow strict U.S. law and standards of professional conduct to prioritize the interests of our clients over our own.

Contact us here for more information on our investing, retirement, and financial planning services today.