Why you need a retirement spending strategy
Saving for retirement was never a simple or thoughtless task. Over the course of our working years we are encouraged to save for our retirement through a variety of accounts and products, each of which could affect your tax situation in many ways. Some accounts give you a tax benefit the year of your savings, while others forgo die tax benefit until distributions are taken in retirement.
If you think these decisions are challenging, imagine a world in which die more challenging aspect of saving money for retirement isn't saving at all but rather distributing income from your investments.
If the average retiree waits until age 65 to retire, he or she must plan for the very real possibility that life (and spending) in retirement could last 30 years or longer.
From savings plan to income plan
The savings decisions that income earners make over the years directly impact die amount of savings they can draw from when diey retire, and why should your income strategy' in retirement be any different?
Saving for retirement can be made easier widi die help of a retirement savings plan created with the help of a qualified team of planning professionals. So, too, can a retirement income plan clarify' your family's financial position in retirement and help you navigate die risks of unsustainable distribution levels, unintended tax consequences, and so much else.
Income planning can help you understand when to take income, knowing from which accounts to distribute that income, and how much income you could reasonably take widiout increasing the risk that you and your family live longer than your savings do.
Single sizeable sum
If retirees looking to receive a lump-sum distribution to replace a roof or to finish an addition, they will want to know tiiat some retirement vehicles represent pre-tax savings and taxation that has been deferred over die course of the account's growth . This means that taking a lump sum of
Spending in steady streams
If instead, the question about distributions from savings is in sendee of understanding the most reliable, cost-effective and taxefficient way to receive monthly income to supplement pensions and
For diose who already ovvti and will benefit from pensions in retirements, you know die peace of mind that a guarantee of income can provide. But diere is still hope for the growing number of w'orkers who do not have die benefit of employer-sponsored pension strategies.
Some retirees will develop an "informal pension" for diemselves by distributing a fixed monthly sum from dieir investments. The risk here is that a declining market could compound your investment losses if you regularly sell investments for lower and lower prices just to produce a monthly stipend. Ultimately, diis might even pul a retiree at risk of outliving his or her savings.
Rather than rely on strong market performance to meet monthly expenses, some investors choose to purchase investment products that almost entirely eliminate the risk of outliving one's income. In exchange for a single, often sizeable payment, many insurance companies will guarantee you a stream of income for your life, lor a guaranteed number of years, or some blend of both.
Tax benefit post-mortem
Much of retirement is planned around die fact that retirement ends in death. Because of this, investors must also consider which accounts represent die most taxefficient transfer of wealth to beneficiaries. Certainly, some investments hold greater value dirough the promise of continued laxdeferral even after the owner's death.
When planning how best to distribute income in retirement many investors partner closely widi qualified investment and tax professionals so that those years spent saving aren't squandered by a lack of proper income planning.
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