Retirement Planning

You have spent your lifetime accumulating wealth and have experience saving.  Do you know when you have accumulated enough to be relatively certain you will not run out of money?  Where should you withdraw money from and when?  What type of asset allocation should a retiree have?  Should you convert your IRA to a Roth IRA during retirement?

I can help answer these questions.  I have helped several families get to retirement and I continue to help them manage the distribution of their assets.  Retirement is the largest purchase you will make in your life and it is something that most people can’t do over if they mess it up.

Flooring

Some retirement plans call for a floor.  This is where you calculate your fixed expenses and make sure they are covered with Social Security, bond ladders, or guaranteed annuity income.  This can help a retiree feel more secure to know that no matter what happens to the stock market, they will still be able to afford food, utilities, etc.

Variable Withdrawal Strategies

Flooring strategies can be combined with variable withdrawal strategies that use some sort of rule.  The most popular rule based strategy was developed by William Bengen in 1994 and some people refer to it as the 4% rule.  This retirement planning strategy studied all of the worst times that you could have chosen to retire and found that the largest initial withdrawal you should make if you want to keep up with inflation over a possible 30 year retirement is only 4%.  That means that you can only pull $20,000 from a $500,000 portfolio per year.

Below is an interesting chart that BlackRock produced showing different withdrawal rates for a couple retiring with $1,000,000 in 1973.  The bear market of 1973-74 and the inflation of the 1970s made this one of the worst possible times to retire.  In the disclosure you can see that they have a hypothetical portfolio of 1/2 stock and 1/2 bonds.  It is also important to note that the couple picks an initial withdrawal rate that goes up each year to keep up with inflation (see white box).  Only the couple that initially pulled out only 4% didn’t run out of money in this example.  If they chose a different date to retire, the couple might have been able to start with a withdrawal rate of 5%.  Since you never know what investments are going to do immediately after you retire, you should chose a conservative withdrawal strategy.  Here is some further reading on retirement planning.

There are many different withdrawal rate strategies as well as taxes to consider when you are retired and when you ultimately pass away.  Damon Gonzalez is a Retirement Income Certified Professional and has extensive knowledge of the withdrawal phase of your financial life.  Give me a call to schedule a complimentary consultation to get a second opinion on one of the biggest financial decisions you will ever make.