How Can Affluent Retirees Ensure Their Retirement Savings Last?
A great many of the successful clients we're privileged to work with at Keen Wealth weren't born wealthy. They've grown their nest eggs, dollar by dollar, over years of hard work and diligent financial planning. As they're nearing retirement, these folks aren't just thinking about what life without work is going to be like -- they want to preserve their wealth to support them throughout their golden years and to build a lasting, inspiring legacy.
Affluent seniors can use these five principles to start making their plans to enjoy, maintain, and even maybe grow their assets in retirement.
1. Sketch out your retirement timeline.
Decades of research have shown that spending typically decreases in the early and middle stages of retirement, and then starts to gradually increase later in retirement. This "retirement smile" comes from lower cost-of-living expenses typically giving way to higher spending on health care and quality of life expenses as you age.
Of course, no two "smiles" will look exactly the same. Some folks might plan for a spending spike in their 60s and 70s to accommodate travel, leisure, and relocation. Folks who are dealing with chronic health concerns or who have hereditary conditions in their family histories might also need to spend more on health care sooner rather than later.
Your unique combination of wellness and spending goals will be the key markers on your own retirement timeline. Scheduling regular check-ups with your doctors and check-ins with your financial advisor could help you set realistic expectations for how long your savings will need to last to maintain that delicate balance between enjoying yourself now and preparing for the care you'll need later.
2. Invest in growth.
Many seniors shift their investments from "growth mode" to "conserve mode" in retirement, moving away from market exposure to more stable positions in things like cash and government bonds. But, with the guidance of a financial advisor, a diversified, personalized portfolio of securities and bonds could help you offset your annual spending and the rising costs of goods and services due to annual inflation.
Affluent seniors who have built up a tolerance for market risk over the years often rely on a more "stable" bucket of saved cash to cover their early retirement expenses. Meanwhile, their investments keep working for them, their delayed Social Security benefits keep increasing, and their nest eggs keep growing. And while we caution folks against the overblown hype around "alternative investments," there can be opportunities for seniors to diversify further into things like real estate. Aspiring entrepreneurs might even invest in themselves by starting their own businesses in retirement.
3. Prioritize spending categories.
Even if you don't run around buying boats and sports cars, it can be tempting to treat a substantial retirement nest egg like it's a jackpot -- a resource so big that you don't have to think about fancy dinners, home theater upgrades, or well-intentioned loans to struggling adult children. Seniors who spend too much too fast might not experience the long-term effects on their financial plans until decades later, when they're suddenly facing life-or-death decisions about hospital bills and long-term care.
Along each curve of that "retirement smile," affluent seniors need to make distinctions between essential and discretionary spending, and budget appropriately. Again, most seniors see their monthly expenses drop early in retirement because they're not commuting to work or feeding a houseful of teenagers. You might decide to allocate those savings to topline discretionary spending items, like a big family vacation. Or you might look further down your retirement timeline and see future needs you want to start working towards. For example, you might work with your advisor to create a "Moving to Florida" bucket so that you're ready to pull up stakes when the time is right. Helping folks visualize these kinds of tradeoffs and establish priorities is one of the most valuable uses for a comprehensive financial plan.
4. Optimize your tax strategy.
As a retiree you're not done paying taxes just because you're no longer collecting a paycheck. Within your portfolio you probably have a mix of accounts that are taxable (brokerage accounts), tax-exempt (Roth IRA), and tax-deferred (401(k) and traditional IRA). Sequencing withdrawals from these accounts is vital to keeping your taxes low and maintaining the long-term prospects of your nest egg.
Most affluent seniors will typically tap their taxable accounts first, with additional support from cash reserves as needed. You'll usually end up paying lower taxes on capital gains than you would on withdrawals that the IRS categorizes as income. And if you can avoid using your 401(k) or IRA before you have to take the required minimum distributions (RMDs) at age 73, those accounts will continue to compound and grow.
Once you reach RMD age, it's usually best to start by withdrawing from tax-deferred accounts to take full advantage of your Roth IRA's tax-exempt status. An advisor can also help you coordinate how and when you use these accounts to control your year-to-year tax liability via Roth conversions, tax-loss harvesting, and charitable giving.
5. Reduce risks.
Of course, market volatility and tax liability aren't the only risks that affluent seniors need to account for.
As that retirement smile starts moving back up later in retirement, you have to be prepared to manage the increased costs of health care, especially in the event of an accident or unexpected diagnosis. According to the U.S. Department of Health and Human Services, approximately 70% of seniors will need long-term care at some point during retirement, an expense that most traditional Medicare plans won't cover. Some seniors might consider purchasing long-term care insurance or annuities to provide additional protection and financial resources as they age.
Estate planning can also be complex for affluent seniors. Folks with large estates may need to establish trusts or family foundations to preserve their wealth and last wishes. It's also important that you choose an executor and benefactors who will work with your financial advisor to carry out your legacy with efficiency, diligence, and love.
You’ve worked too long and too hard to sacrifice your wealth to risks that could be mitigated with forethought and planning. Call up Keen Wealth and we’ll share how our comprehensive planning process could help to secure your assets and reach your goals at every stage of retirement.
About Bill
Bill Keen is a financial advisor with over 30 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he focuses on providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to Forbes, U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
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