How Retirement Saving Relates To Retirement Spending

How Retirement Saving Relates To Retirement Spending

September 3, 2019

By Jeremy Reif, CRPS®, Financial Advisor and Owner of Point Wealth Management

You don’t have to look far for general retirement advice. Unfortunately, a lot of that advice can be contradictory or overwhelming. We are often told that we need X amount for a 20-year retirement, or that we should contribute X amount to our 401(k). These types of statements imply that you will face a financially insecure future if you don’t amass a certain amount of savings, but how do you make sense of this information based on your unique situation?

It’s Not All About Saving

In reality, saving and investing for retirement is not strictly about reaching a certain numeric goal, either with your investments or your net worth. Just as there is no one-size-fits-all retirement strategy, there is no “average” retirement savings number that applies to every individual or couple. 

Many new retirees leave their working years behind wanting to enjoy the same quality of life they had when they were earning consistent paychecks. This is where the intersection between retirement income and retirement spending collides. A key goal of any retirement strategy should be to save enough to support your desired retirement lifestyle, which is why you won’t find the answer to how much you should save by reading articles and looking at statistics; every person has different needs and wants and therefore requires different retirement savings goals. 

This is why it is crucial to periodically review your retirement strategy, especially after age 50. While you may not be able to pinpoint exactly what you will spend in retirement, how much you save and invest may need to increase or decrease in light of potential future income needs. (1)

Steps Toward A Smooth Retirement Transition

Retirement is often accompanied by other significant life events. As you conclude your career or step away from your business, you may also see changes in your goals, finances, social circle, health, and residence. Preparing for your retirement transition, both financially and mentally, is wise. This is not something you want to sneak up on you.

A few months to a year before you reach your retirement date, set aside an hour, a few hours, or even a day to consider the steps that may be part of the transition. With forethought and consideration, these steps may end up being unremarkable rather than upsetting when you are about to follow through on them. 

1. Test It Out

For practice, try living on your expected retirement income for a month or two. Track your expenses and see how they compare to the general guidelines. Are you spending more or less in certain areas? Do you find yourself pinching pennies or did you find even more ways to cut back? Don’t forget to stress-test your savings to see how they will stand up to different scenarios, like if the market crashes, if you face unexpected healthcare costs, or if a spouse dies prematurely. If you wait until you are retired to take this step, it may be too late to make the changes necessary to maximize your retirement income.

2. Think About Taxes

Tax planning can save you more money than you realize. By projecting your future income and taxes now, you may find opportunities to save. When you are living off a fixed income in retirement, tax strategizing can make a world of difference in the longevity of your nest egg. 

For example, a $50,000 withdrawal from a Roth IRA will have a wildly different tax impact than that same distribution from a traditional IRA. Creating a tax plan can help you strategically withdraw from your various retirement accounts and minimize your tax liability. 

3. Watch Your Investments

As you approach the date where you will no longer be earning an income it is a good idea to review your investment portfolio’s asset allocation, especially at the 10-year pre-retirement mark. Meet with your financial advisor to discuss your retirement plans and see if you should be making any changes.

Along with reallocating your investments, you’ll want to consider how the sequence of returns could impact your portfolio’s value over time. In the simplest of terms, sequence of returns refers to the risk of receiving lower or negative returns early in a period when you’re making withdrawals from your investments. If your retirement date correlates with the onset of a bear market, your savings can be depleted quickly as you withdraw from your portfolio. With a smaller investment base, you’ll have less wealth remaining to benefit from a future market upswing.

4. Make A Plan For Your Time

Last but not least, don’t forget to think about the non-monetary aspects of retirement. Saying goodbye to your career, your colleagues, and your routines can cause anxiety and depression, so plan ahead to fill some of your time with activities that will help you feel active and fulfilled. Devoting your free time to long-held dreams, whether that’s traveling, investing in your family and friends, or volunteering can help to avoid the negative emotions (and reactions) that can come with this major life transition. (2)

On The Bright Side

It may be easier than you think to create a personalized retirement strategy so you can feel confident in your future plans. Research from management consulting services provider Alight Solutions reveals that 60% of employers now offer workers online tools and guidance to help them with saving and investing for retirement. (3) If your employer does not offer these tools, or if you’d like one-on-one help from a professional who specializes in helping you plan for retirement, I am here to help and point you in the right direction. Would you like help finding out what path your current plan is on? Schedule a call and meet me virtually.

About Jeremy Reif, CRPS®

Jeremy Reif is an independent financial advisor with more than a decade of experience in the financial services industry. He is also the owner of Point Wealth, LLC, an independent financial planning and investment management firm. With advanced credentials and training in retirement planning and financial planning, Jeremy focuses on helping individuals and families pursue financial independence. Regardless of the services he’s providing, he focuses on talking openly about financial planning, the industry, common questions about retirement planning, and more to help everyday investors gain more confidence in their financial opportunities. Based in Wausau, Wisconsin, Jeremy serves clients throughout the state and can work virtually with clients throughout the country. To learn more, visit http://pointwealthmanagement.com and connect with Jeremy on LinkedIn.

Investment Advisory Services offered through Retirement Wealth Advisors, Inc. an SEC Registered Investment Advisor 

Securities offered through World Equity Group, Inc. member FINRA and SIPC, a Registered Investment Adviser 

Point Wealth Management, Retirement Wealth Advisors, Inc. are separate entities and are not owned or controlled by World Equity Group, Inc. 

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss. 

The opinions expressed by Jeremy Reif are not necessarily those of Retirement Wealth Advisors, Inc. or World Equity Group, Inc. and are subject to change. 

The information in the newsletter is not intended to be investment advice or to predict future performance. Past performance does not guarantee future results. Consult with your financial professional before making any investment decision.

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(1) https://www.forbes.com/sites/kristinmckenna/2019/07/10/debunked-6-myths-about-retirement/#71641fd75e8b

(2) https://www.fedsmith.com/2019/07/09/three-steps-avoid-retirement-blues/

(3) https://alight.com/our-story/newsroom/alight-finds-automatic-enrollment-in-401(k)-plans

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