Retirement planning doesn?t end once you retire.
Like any financial plan, it requires periodic adjusting.
Two of the first and most important decisions are
how much to withdraw annually from your nest egg, and what accounts to withdraw
Much research in recent years has concluded that
withdrawals should be more conservative than once thought. As a general rule,
we recommend withdrawal rates no higher than four or five percent, adjusted for
inflation, in order to ensure that you don?t run out of money due to periodic
Retirees who withdraw at higher rates should be
prepared to immediately cut back should their accounts suffer from a
significant market downturn, or should their personal circumstances change for
From which accounts?
The general advice is to first withdraw from
taxable investments in order to allow tax deferred retirement assets to continue
to grow. But this approach isn?t always appropriate. For example, if your
taxable investments are mostly bonds and your tax-deferred accounts mostly
stock, withdrawing only the bonds first would make your overall portfolio
riskier by becoming stock heavy.
Once you reach 70 1/2, your choices are further
limited because you?re required to start minimum distributions from your IRAs
and retirement plans (except for a plan run by an employer you still work for).
What should you be invested in? You?ll probably
want to be more conservative than before retirement. Yet that doesn?t
necessarily mean abandoning stocks. With potentially 20 or more years in
retirement, inflation can eat away at lower-returning assets.
As a general rule, we often recommend that the
portfolio hold at least two to three years of living expenses in cash and bonds
that can see you through a stock market decline. Beyond that, there is no magic
allocation of stocks/bonds/cash or other assets. Much depends on your other
sources of income, risk tolerance, age, living expenses and financial goals
such as leaving money to children.
Besides adjusting your investments during
retirement, you may need or want to adjust your lifestyle. Is retirement
turning out as you envisioned? Did that ?practice? for retirement pay off?
common today for retirees to return to work?not always out of financial
necessity but for something stimulating to do. Playing golf every day or
traveling all the time can get boring for some. Besides work, you may want to
consider going back to school or doing volunteer work. Keeping mentally,
physically and socially active is key to enjoying this stage of retirement, say
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