“Be clear about your goals, but be flexible about the process of achieving them.” – Brian Tracy
Most people want to live their best life and not run out of money.
One strategy that could help is to set up guardrails for retirement income.
You have $1 million and take 5% ($50,000) out each year.
If that $50,000 becomes 4% of the account value ($1,250,000) due to market increases, then increase the withdrawal back to 5%. Your new withdrawal rate will be $62,500.
If the $50,000 withdrawal rate rises to 6% ($833,333) due to market decreases, cut income down to 5%. Your new withdrawal rate will be $41,666.
You don’t want to be flexible in retirement spending? Then take less initially. You may have more estate value at the end and miss out on spending more along the way.
Without knowing it, you may have used guardrails in other parts of your life.
Have you ever gotten a traffic ticket and driven slower afterward? Have you ever gained a little weight and decided to exercise more? Had a health issue and decided to eat better?
I lost weight to do the Ironman last year. I gained some back after eating my body weight in ice cream that December. I deserved it, right?
These are all guardrails used to put you back on track for your long-term goals and help you live your best life along the way.
Using guardrails for retirement income planning is helpful, but not complete. You may have one-time income needs. You may want to spend more income early and less later. Your goals may change.
Retirement is not like a golf ball after being hit. You can adjust along the way to help you get the most out of your wealth and life.
The stiff oak falls in a storm. The willow remains.
As Aldous Huxley writes: “Man has an almost infinite capacity for taking things for granted.” The goalposts of success constantly shift. A new innovation can go from unfathomable luxury to baseline necessity in a few months. So progress is always a step ahead of contentment. That fuels the need to keep innovating, which is great. But it creates a world where people who are exponentially better off than their ancestors have little added happiness to show for it.
Be mindful of valuations and keep an eye out for opportunities.
I saw a beautiful Italian leather backpack at the airport in Munich. With today’s exchange rate and the 50% discount, the cost was 75% less than last year.
The same could be said for some investments…
- Major stock market indices have taken very different trajectories over the past decade due to differences in growth.
- Despite the bear market this year, U.S. market valuations are elevated compared to other regions.
- International stocks, on the other hand, are still cheaper in relative terms across both the developed and emerging world.
Check your interest rates on cash. Many banks have not raised the interest they are paying on cash. You may be able to get a much higher rate if you check around. For retirees generating income, I generally recommend one to two years of cash. This helps using guardrails and having dynamic withdrawals.
A great song about living your best life by The Avett Brothers, No Hard Feelings.
Let us know if you have any questions. Happy to help! Click here for a phone appointment or call the office at 843-970-1049.
On the lighter side, Elliott got his second Tennis State Championship ring on Saturday at the Myrtle Beach High School football game. Very happy for him and his teammates.
Hope all is well with you and your family,
Finger Financial Five – 5 points in 5 minutes or less – is to provide you with a weekly shot of useful financial information. My intention is to share principles, so that you will have more clarity and peace, that help you make better financial decisions.
Investment advice offered through Stratos Wealth Advisors, LLC, a registered investment advisor; DBA Riverbend Wealth Management.
This content is developed from sources believed to be providing accurate information and provided by Riverbend Wealth Management. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Stratos Wealth Partners and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.