People planning to retire in the near future, those already retired and some transitioning to the post-work life have greater concerns about their investments than ever before.
Geopolitical events, the surge in inflation and the increases in interest rates understandably are causing people to worry about where their money is going and whether it will grow sufficiently to meet their retirement needs. But they shouldn’t let outside forces they can’t control overwhelm their ability to prioritize, adjust, and invest wisely.
Here are six tips that can reduce anxiety and add more certainty to your investment strategy when you are nearing or in retirement.
- Don’t give in to knee-jerk reactions
Turn off financial news programs and random Google searches. They are meant to stoke fear because fear gets views and readers. If you listen long enough or read lots of negative financial news, there’s a greater chance you’ll end up making an ill-advised, poorly timed decision about your investments. Instead, let the curiosity that media sparks lead you to search out personalized advice.
- Differentiate your money between short-term and long-term
People tend to treat all of their money the same. The financial industry sets it up that way in how it trains advisors. For example, some advisors will tell people that if they have $1 million, they can withdraw a certain percentage of that money every year and be fine. But that approach leads retirees to think that it’s all one pot of money that works just the same, regardless of what type of account they have used for their savings and how the account is invested.
- Shore up your income streams
The transition from work to retirement is understandably uncomfortable. Before retirement, you got a steady paycheck from work, but in retirement, you want your money to do they paycheck work so you can go play. Shoring up retirement income streams gives retirees the comfort of knowing they have a certain amount coming in every month and every quarter. The security can change their whole emotional outlook in retirement. It can be the key to having more confidence to do the things they want to do.
- Invest in quality companies for the long-term
Because of inflation, longevity, expenses and all the things you want to do in retirement, your money needs to grow over the long term. An enjoyable retirement depends largely on realizing steady growth from investments; therefore, retirees should be invested in some amount of equities. Investing in quality companies can build investor confidence because the investor knows what they own.
- Focus on being tax-efficient
Which asset “bucket” you draw money from and the potential tax implications of when you take it to meet retirement income needs should be factored into your overall retirement plan. Being tax-efficient could make a big difference in your usable dollars. In fact, how much money you’re able to use after taxes could matter more in retirement than how much money you have or how much it grows.
To be tax-efficient, you need to have your money thoughtfully divided into three different buckets:
- The tax-free bucket (including Roth accounts and life insurance), which doesn’t get taxes at all when withdrawn.
- The tax-deferred bucket (IRAs and 401(k) accounts), which get taxed at your ordinary income tax rates.
- Taxable buckets (brokerage accounts), where the gains get taxed at capital gains tax rates.
You should consider investing differently in each of those buckets based on the tax implications of the accounts and strategize when to pull money from each of them so you can maximize for tax-efficient withdrawals.
- Let integrated planning help you make sound decisions
A solid investment strategy is about more than what is in your portfolio and its percentage return; it must be integrated into your overall income, investing, and tax retirement plan. This is where the additional value of an advisor can be realized. Many advisors don’t do integrated planning and, therefore, tend to miss opportunities to maximize income withdrawals, investing efficiency and tax minimization.