How Can You Retire During Uncertain Times?
As I monitor the economic developments and their effect on markets, it strikes me that things today are more uncertain than ever. The current volatility in the stock and bond markets underscore that uncertainty.
Interest rates are on the rise, the Federal Reserve is starting to reduce their involvement in the bond markets (and others), inflation seems to be increasing, the supply chain appears to be broken in many areas and both social and political unrest are on the rise.
As clients speak to me about these and other concerns, many are starting to worry that retirement and financial security are out of reach.
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Here at Gainer Financial, we have always believed that if you want to enjoy your “golden years” without stress and anxiety, your plan for retirement should be able to withstand all those forces.
Looking at the big picture, it seems uncertainty is on the rise.
The only thing we can be sure of is change.
Changes to taxes, changes to economic policy, changes in interest rates, changes in employment, changes to financial regulations are among the changes that we can be pretty sure are both in the works and on the horizon.
This isn’t the first time in recent history that we have entered a period of significant uncertainty and the economic and investment volatility that tends to come with those periods. We have helped people transition to a happy retirement during those periods in the past, so we have a solid understanding of what it takes to successfully create financial security during challenging times.
With this backdrop, I wanted to give my readers some suggestions as to how you can reduce the stress and anxiety that so much change can bring about.
After all, “Retire Happy” is our motto and you can’t do that if you are stressed out. So here are 5 things to keep in mind as you look forward to your happy retirement.
5 Things To Keep In Mind If You Want To Succeed
- Know your why. Why are you saving and investing? If you are looking to save money for retirement, then know that income is the objective. Too many folks tell me that they can’t sell a stock because they will have to pay taxes. For example, if your objective is creating retirement income and there is no massive dividend income to collect from that stock, how is it serving your why? What is the plan to get it in alignment with your desired outcome?
- Know your when. What is my time horizon until I will be spending the money you are investing? If you have less than 5 or 6 years, you may not have time to recover from a significant market correction. To get back to the level that the S&P500 was at in October of 2007, it took over 5 years and didn’t recover the lost ground until April of 2013. If you are retiring or recently retired, you don’t have that kind of time to waste.
- Have an income plan. The sooner you know what kind of approach you will take to creating your retirement income, the easier it is to pick and choose what financial tools will provide the best outcome for your strategy. There are only a few ways to create retirement income that work. Your strategy needs to provide income for as long as you live and keep up with the cost of living. This is why we have been writing about Social Security claiming strategies in our recent blogs and podcasts. Social Security can be a great source of lifetime income.
If you are counting on a strategy that can run out of income, then you won’t be able to relax and enjoy your time. The fear of another 30%+ meltdown can create its own stress. Who needs that?
- How will taxes effect my income? There used to be a saying that the only things that are certain in life are Death and Taxes. Well, let’s revise that to only one of those. Taxes seem to be one of the more popular topics for governments everywhere. They are being changed and modified all the time. Are your plans “Tax Diversified”? Being able to pivot to different types of tax exposure can make a huge difference in how much of your savings and wealth you will be able to spend.
If the vast majority of your money is in tax deferred accounts like 401k’s, SEP’s and IRA’s, you might find that you are more vulnerable to both direct taxes like income taxes, and indirect taxes like higher premiums for Medicare, tax surcharges, or phase outs of tax deductions, just because you took money out of a 401k or IRA. There is a hierarchy of money (from best to less favorable);
- Free money
- Tax Free money
- Capital Gains taxed money
- Ordinary Income taxed money (IRA’s, earned income, etc.)
It is critical that you understand how these different tax treatments can work together to be able to adjust your withdrawal strategy and lessen the impact of those changes.
After all, it’s not how much wealth you have, it is how much of it you can spend!
Your plan should have contingencies so you can respond to future changes in the tax code.
- Avoid losing money! While you are thinking, “of course I don’t want to lose money”, most investors do not have a plan to limit losses until it is too late. One way to avoid losses is to lock in gains. Don’t let the tax tail wag the financial dog. Many investors right now are holding on to highly appreciated assets like stocks and real estate because they don’t want to pay capital gains taxes. Consider the cost vs benefits of taking profits while you can.
We have a program that shows how impactful avoiding significant losses can be to your wealth. If you enjoy 50% of the upside of the S&P 500 and NONE of the downside, you will come out ahead over a 20 year period, and we are happy to prove that. With recent volatility, this might be a good time to consider locking in your gains and evaluating your strategy in light of recent economic and market changes.
Uncertainty Doesn’t Mean You Shouldn’t Do Anything
It seems clear that volatility and economic uncertainty are on the rise. The pandemic, politics, supply chain shortages and severe weather incidents, among other factors are all adding pressure.
At Gainer Financial, our planning objectives are designed to remove these factors from the equation to the extent possible. In my experience, that is the best way to enjoy a happy, low stress retirement.
Hopefully this post has given you food for thought. My hope is that you will take the time to include these concepts into your planning process. Let me know your thoughts by using our the form on our Contact page to send me a direct message. I read all comments personally and will get back to you right away.
Roger holds the coveted and well-earned designations of Chartered Financial Consultant (ChFC®) and Retirement Income Certified Professional (RIPC®) from the American College. He is also a licensed insurance agent for life and health insurance and a Certified Paralegal for Estate Planning.