As a financial industry professional, I spend a fair amount of time talking about saving. Shifting to a retirement mindset where spending your nest egg is suddenly okay can be challenging for many people. It requires careful planning to ensure your savings will last. Here are five key steps to navigate this important life change:
1. Adjust your investment strategy
Shift from growth-focused investments to more conservative options as you near retirement. Consider moving some investments from high-growth stocks to income-producing investments like dividend stocks, bonds and other stable assets.
2. Establish spending guidelines
Many retirees follow the 4% rule—withdraw 4% of your portfolio every year, adjusting for inflation after the first year. This plan balances steady withdrawals with long-term sustainability, helping you maintain financial momentum throughout retirement. Assuming you are getting a reasonable return on investment, the withdrawals should consist mainly of dividends. If this strategy doesn’t work for you, discuss alternative withdrawal plans with your financial advisor.
3. Create a detailed budget
Retirement expenses aren't simply reduced working-life costs. Account for new expenses like private healthcare coverage, changes in housing costs and increased leisure activities. Prioritize essential expenses and build in buffers for irregular costs.
4. Plan for taxes
Remember that withdrawals from traditional IRAs and 401(k)s are taxable, with required minimum distributions starting at age 73. Managing your annual taxable income carefully can help preserve your savings.*
5. Monitor and adjust
Regular portfolio reviews are essential to ensure your investments align with your income needs and risk tolerance. Watch for common risks like:
- Changes in spending patterns
- Impact of inflation on purchasing power
- Longevity considerations—longer life means more years using your retirement savings
One more tip: meet regularly with a financial advisor. A trusted professional not only has the most up-to-date information you need, but they can also provide unbiased recommendations to help you achieve your ultimate financial goals faster.
With proper planning and regular adjustments, retirement can be the fulfilling adventure you have worked so hard to achieve.
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*Mountain America does not provide tax, legal or accounting advice. Consult your tax, legal and accounting advisors before engaging in any transaction.