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The Retirement Distribution Balancing Act

The Retirement Distribution Balancing Act

November 11, 2021

How to adjust to withdrawing income after a lifetime of building your savings.

The transition from accumulation to distribution is an exciting, and peculiar, period of time. Many people are looking forward to their retirement but also have concerns about whether their finances are in order. A distribution strategy in retirement is just as important as the accumulation strategy. Maybe even more so in order to enjoy your hard-earned retirement without the stress of financial questions.

A new set of concerns can pop up as you begin drawing from your retirement savings.

  • How much should I take out?
  • How long will my savings last?
  • How will medical and long-term care expenses affect my savings?

Here are some suggested areas to plan for before entering the distribution phase of your retirement.

Don’t ‘Set It And Forget It’

As you enter into your retirement you will have some estimates and assumptions about how much your spending, your taxes, and your income will be. Some people even make a blanket assumption that a set percentage such as 4% withdrawals each year will be sufficient for planning their distribution strategy. However, many people find that as they adjust to this new phase of life, they also need to adjust their strategy based on real-life experience. You may find you are traveling more or less than you anticipated, or other changes happen that require a change in your initial assumptions. This is normal! Many people make edits with their advisor as they see how retirement expenses and spending actually play out. Some people find it helpful to work closely with their financial advisor during the first couple years of retirement as they adjust. 

Don’t Abandon Long-Term Investments

Just because you are retired now doesn’t necessarily mean that all investments should be ultra conservative in their investment strategy. Even though people are working longer and retiring later in general, you still likely have many years you will be spending in retirement. In Idaho, the average age of retirement is 64.1 Depending on your life expectancy, you could still have a 20 or 30-year investment time horizon which is generally considered a long-term time frame. Retirement will definitely cause adjustments to your financial strategy. But, your financial advisor may also provide suggestions for how to address your short-term needs, income needs, as well as ways to maximize your returns in the long-term.

Prepare For The Unexpected

Though often overlooked, health care can be one of the biggest expenses you face in retirement. The average 65-year-old couple who retired in 2020 can expect to spend $295,000 in health care and medical expenses throughout retirement.2 While you may be receiving your Social Security benefits, Social Security is really meant to supplement retirement savings. Most people will need to invest in other sources to cover retirement needs and medical expenses. Medicare can pay for some health care spending in retirement, but does not cover long-term care.3 You can also save money for health care costs with a health savings account (HSA). HSA funds can be used to pay for certain medical premiums, including Medicare premiums and long-term care insurance premiums. Another option is purchasing a long-term care policy which can pay a monthly benefit toward long-term care. There are a lot of options to plan for additional expenses that may arise.

Determining how much and when to withdraw money from your investment portfolio in retirement to supplement other sources of income—such as Social Security or pension plan distributions—is critical to pursuing your long-term income needs.

Working with a local advisor versed in the transition process of living off of your retirement assets means you have an experienced professional to help craft a plan specific to you.

Talk with one of our financial advisors today. We would love the opportunity to plan with you. CONTACT US