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The Top 5 Financial Planning Challenges In The First 10 Years Of Retirement

03 Sep

By: Colleen Weber

News and Updates / Retirement Planning

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By Colleen Weber, CFP®, CPA

Those long-awaited-for golden years are finally right around the corner, and your dreams of golf courses and sandy white beaches are almost a reality! But wait…without the security of a steady paycheck and a structured schedule, you’re embarking on a journey into the unknown of finite resources and endless free time. Will all your years of hard work pay off?

We’ve found that most retirees face the same 5 financial planning challenges during the first 10 years of retirement. If you want to experience a fulfilling retirement free of worry and regret, listen up. 

1. Not Creating A Withdrawal Strategy

Financial planning doesn’t stop once you enter retirement. Capitalize on your wealth by deciding the most tax-efficient way to withdraw funds in your golden years. 

Different financial accounts are taxed at different rates. Traditional IRAs and 401(k)s get taxed at the ordinary income tax rate when you withdraw. Roth IRAs and Roth 401(k)s are taxed beforehand, so the money is withdrawn tax-free. Funds in a taxable investment account are taxed at the capital gains tax rate, which is different than your ordinary income tax rate. 

As you can see, calculating the best time to pull from each account is enough to give anyone a headache. But the last thing you want is to get hit with a hefty tax bill.

Create a withdrawal strategy with the help of a trusted professional who can make sure you’re withdrawing funds at a sustainable rate and that you’re doing it in a tax-efficient way.

2. Overspending In Retirement

Many people spend their retirement years doing all the things they never got to do when they were working—starting a passion project, remodeling the house, traveling the world, and more.

It’s easy to underestimate the amount of money you’ll spend those first few years when you don’t account for all these “extras.” Overspending, even for a short period, can shave years off the longevity of your assets. My advice? Create a spending plan. Calculate your monthly income given your withdrawal strategy (See #1) and then create a budget. 

3. Ignoring Inflation

Another major challenge we see new retirees face is the desire to play it safe in the stock market. This does more harm than good as it leads to inflation risk. 

In 2014, the CMS estimated that healthcare expenditures inflated by 5.4% overall, compared to the average inflation rate of 1.6%. (1) What does this mean? Retirees are more likely to feel the effects of inflation due to mandatory expenses, such as healthcare costs. 

As tempting as it may be, resist the urge to worry about short-term stock market volatility. With a retirement that could easily last 20 to 30 years, inflation is still the biggest threat to your nest egg. Sit down with a trusted professional who can help you strike a balance between protection and growth. 

4. Not Having An Emergency Fund

Could you comfortably pay an unexpected, major expense in retirement without jeopardizing your financial future? For most of us, the answer is no. Just as you were taught to have an emergency fund in your formative years, it’s even more critical to have one in your retirement years. 

Most professionals recommend having at least 12 to 18 months of expenses in an easily accessible savings account. (2) This may sound like a lot, but an emergency fund serves two purposes: it covers unexpected expenses and it provides stability during economic downturns. This means you can optimize your portfolio to beat inflation (#3 on our list) while having a safety net to fall back on. 

5. Going Through Retirement Alone

After decades of strategizing to grow and protect your wealth, don’t just “wing it” in retirement and manage your money alone. A trusted financial advisor by your side can make the difference between having a retirement fund that dries up and having one you can’t outlive. Rather than spending your precious time worrying and wondering, reach out to Colleen Weber CPA, CFP for guidance. Call (952) 470-0750 or book a free introductory meeting online today.

About Colleen

Colleen Weber is a fee-only financial advisor, CERTIFIED FINANCIAL PLANNER™ professional, and CPA with more than 15 years of financial planning experience. Providing comprehensive financial planning and wealth management, she specializes in serving clients nearing retirement, retirees, busy professionals, and women. She is passionate about developing financial plans that save clients on taxes, and investment strategies that help them pursue their goals. Learn more about Colleen by connecting with her on LinkedIn or booking a complimentary phone call meeting.

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(1) https://www.investopedia.com/articles/retirement/052616/how-inflation-eats-away-your-retirement.asp

(2) https://www.thebalance.com/how-much-emergency-savings-do-retirees-need-4582473