For those who have just retired or are about to, the current economic climate can be daunting. Inflation and economic uncertainty are major concerns for this group. To navigate these challenges, it’s essential to focus on what can be controlled.
Assessing Spending Rate
Retirees are particularly vulnerable to sequence-of-returns risk, which occurs when a bad market emerges early in retirement. This can significantly impact a portfolio’s ability to last throughout retirement. Adjusting spending rates can help mitigate this risk. Even small tweaks, such as forgoing inflation adjustments following a bear market, can make a significant difference in ensuring that spending lasts over a 30-year period.
Strategies for Retirement Income
For those who haven’t yet retired, assessing planned in-retirement spending and identifying areas for cutbacks is crucial. Turbocharging savings, especially through catch-up contributions for those over 50, can also be beneficial. Additionally, pulling cash flows from safer assets, such as high-quality bonds or cash, rather than stocks, can help during turbulent market periods.
Playing the Long Game with Social Security
Delaying Social Security filings can lead to a higher income stream that is fully inflation-protected. This strategy is particularly impactful for the higher earner in a family, as it ensures a higher benefit for a younger spouse. However, it’s most beneficial when there are other sources of funds to draw from until the benefits start.
Revisiting Inflation Protection
Inflation is a key risk for retiree portfolios, as the income from safe investments may buy less over time. Adding an inflation-protected bond fund to a portfolio or building a laddered portfolio of Treasury Inflation-Protected Securities can help address this risk.
Tax-Saving Strategies
The early retirement years are an excellent time to consider tax-saving strategies, such as converting traditional IRA balances to Roth IRAs or accelerating withdrawals from traditional IRAs and 401(k)s. These strategies can be particularly beneficial due to lower income and the absence of required minimum distributions until age 73.
Original reporting: KTBS 3 (Shreveport) — read the source article.
