Retirement, it is the best of times and it is the worst of times…but there’s always the grandchildren.
What does it mean to retire? I think there are 6 points to consider among the many other points.
First, R should stand for Risk; it’s endurance, tolerance, capacity or understanding. Risk is the fact that your goals fail; your goals are not realized; your expectations are dashed; your dreams do not materialize. Therefore Risk is more about enduring, tolerating, understanding, or being capable of putting up with the situation you are in, than market jeopardy.
Second, E stands for Ensuring Income. Income during retirement can come from: a. Social Security – yours & your spouse, b. IRAs or other qualified plans, c. Investments of all kinds, d. Miscellaneous income arising from a part time job or a hobby. These sources will vary, ebb & flow, depending on planning, an activity most overlooked. Budgeting during retirement time, more than any other time, is crucial. Budgeting is a lost skill. It can generate challenges and opportunities and is the basis for Gap Analysis.
Third, T for Timing. Timing is paramount for the success of your long term portfolio results and perhaps your Social Security payments. Delaying or speeding up the date can affect cash flow and payment to a decedent’s spouse. Remember that Social Security accrues daily/annually from FRD, full retirement date, until your 70th birthday. This means 8% a year for a total of 32% more for waiting. In addition, retiring on a specific0 date locks in your portfolio and does not allow any additions; except for your individual/personal accounts. 401ks allow additions if you are working past age 70, not IRAs. Hence, sequence of return studies suggest that a 4% withdrawal rate may be too high or too low depending on that budget I spoke of earlier.
Markets cycle through, fear, greed and complacency. Seek diligent, trusted advice to smooth these three out as much as possible.
More next week