Managing Your Nest Egg after Retirement
You may think that after retirement you can sit back and stop worrying about money…after all, you scrimped and saved for decades. You’re comfortable with what you’ve put away and now it’s time to relax. Well…not quite. If not for inflation and market volatility, you might be right, but you still need to keep a careful eye on your portfolio. The current U.S. rate of inflation is a little over 2%, but it fluctuates constantly. A 3% rate of inflation per year means that after 23 years, a fixed sum of money has lost half of its value. What you may have only noticed from time to time at the grocery store and gas station before retirement, you will see as a dire threat to your savings. And unfortunately, safe assets do not keep you ahead of inflation in the long run. Managing your portfolio in retirement can be difficult and complicated, but by doing so, you can keep it growing and combat the threat of inflation. Here are some key points to consider:
Keep some of your portfolio invested in stocks.
Maintain a rate of withdrawal below your annual rate of return. This is no more than 3% or 4% per year, so that the remaining balance can be reinvested to continue growing.
Keep your essential expenses separate from nonessential expenses in your budget. Consider structuring your portfolio to have assets like dividend-paying stocks or long-term bonds pay for your essential expenses, but are otherwise untouched.
Rebalance periodically. This means selling off a portion of the assets in an asset class or sub-class that has grown larger than your intended allocation. Use the proceeds from the sell-off to purchase assets in classes or sub-classes that have shrunk in value. While it is wise to rebalance once per year, it is also good to consider rebalancing when any category of assets has grown or shrunk by 5% to 10% off your designated allocation percentage.
Withdraw as little as possible from your investments and review them regularly. If your investments have gone down in value, you will deplete your balance quickly by continuing the same withdrawal rate as before.
Build up a reserve of investments not tied to the stock market, preferably totaling three or four years of retirement expenses. If you have this reserve to fall back on, you will not need to sell stock investments during periods of market decline.
Withdraw funds in a tax-efficient way to make them last longer. For example, you should withdraw your taxable investments first so that tax-deferred investments can continue to grow. By age 70½ , you will likely have to start taking minimum required distributions from tax-deferred investments, but going back to work part-time may help push that timeline back even further.
Reassess your asset allocation periodically. Make changes gradually to increase diversification in your portfolio.
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This newsletter was prepared by Integrated Concepts Group, Inc. The opinions expressed in this newsletter are for general information only and are not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. The views expressed are those of the author and may not necessarily reflect those held by PlanMember Securities Corporation. Material presented is believed to be from a reliable sources and PSEC makes no representation as to it accuracy or completeness.