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The Top 5 Financial Planning Challenges in the First 10 Years of Retirement

The Top 5 Financial Planning Challenges in the First 10 Years of Retirement

January 24, 2023
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Retiring is an exciting life milestone, and with it comes a new set of challenges, joys, and considerations. There are also some challenges that present themselves in the first 10 years of retirement, and it is important to anticipate and prepare for them. 

Here, we share five of the most common mistakes newly retired (within 10 years) individuals make and how our Return on Life approach can help you avoid these mistakes.

Not Creating a Withdrawal Strategy

Financial planning does not stop once you enter retirement. Capitalize on your wealth by deciding the most tax-efficient way to withdraw funds in your golden years.  

Different financial accounts are taxed at different rates. Traditional IRAs and 401(k)s are taxed at the ordinary income tax rate when you withdraw. Roth IRAs and Roth 401(k)s are taxed beforehand, so the money is withdrawn tax-free. Funds in a taxable investment account are taxed at the capital gains tax rate, which is different from your ordinary income tax rate. 

As you can see, calculating the best time to pull from each account is enough to give anyone a headache. But the last thing you want is to get hit with a hefty tax bill.

Create a withdrawal strategy with the help of a trusted professional who can make sure you are withdrawing funds at a sustainable rate and that you are doing it in a tax-efficient way.

Overspending in Retirement

Many people spend their retirement years doing all the things they never got to do when they were working—starting a passion project, remodeling the house, traveling the world, and more.

It is easy to underestimate the amount of money you will spend those first few years when you do not account for all these “extras.” Overspending, even for a short period, can shave years off the longevity of your assets. My advice? Create a spending plan. Calculate your monthly income given your withdrawal strategy (See #1) and then create a budget. 

Ignoring Inflation

Another major challenge we see new retirees face is the desire to play it safe in the stock market. This does more harm than good as it leads to inflation risk. 

While healthcare expenditures are typically affected less by inflation than other spending categories, from 2021-2022 there was a 4.0% increase in medical care services compared to the historical average inflation rate of 1.23%. What does this mean? Retirees are more likely to feel the effects of inflation due to mandatory expenses, such as healthcare costs.  

As tempting as it may be, resist the urge to worry about short-term stock market volatility. With a retirement that could easily last 20 to 30 years, inflation is still the biggest threat to your nest egg. Sit down with a trusted professional who can help you strike a balance between protection and growth. 

Not Having an Emergency Fund

Could you comfortably pay an unexpected, major expense in retirement without jeopardizing your financial future? For most of us, the answer is no. Just as you were taught to have an emergency fund in your formative years, it is even more critical to have one in your retirement years. 

It used to be recommended to have 3 to 6 months of expenses saved up in an easily accessible savings account, but now more professionals are recommending at least 12 to 18 months’ worth. This may sound like a lot, but an emergency fund serves two purposes: it covers unexpected expenses and it provides stability during economic downturns. This means you can optimize your portfolio to beat inflation (#3 on our list) while having a safety net to fall back on. 

Going Through Retirement Alone

It took decades of strategizing to grow and protect your wealth up until this point. Do not just “wing it” in retirement and manage your money alone. Having a trusted financial advisor that specializes in retirement planning can be the difference between having a retirement fund that dries up and having one you cannot outlive. 

At Wellstone Wealth Management, we work with corporate executives and upper-management couples who are focused on retirement planning. Our clients understand the importance of properly planning for retirement and are more focused on return on life instead of return on investment. If you think we would be a good fit, schedule a complimentary introductory meeting by contacting us at 503-594-1210 or info@wellstonewealth.com

About Greg

Greg Allen is a CERTIFIED FINANCIAL PLANNER™ professional, Life-Centered Financial Planner, Managing Member, and second-generation owner of Wellstone Wealth Management, a life-centered financial planning firm that takes a unique Return on Life (ROL) approach to help their clients live the best life possible with the money they have. With over 20 years of experience, Greg holds fast to his mission of helping clients plan their finances around their lives, instead of the other way around, resulting in fulfillment, confidence, and a meaningful life. Greg also provides a caring, trusted long-term relationship and life-centered financial behavioral counseling. He specializes in working with people who have recently retired or are close to it (typically five years or less) and relates well to corporate executives and upper-management couples who often have complicated financial pictures and need help maximizing their wealth, reducing their taxes, and preparing for retirement so they can maintain their ideal lifestyle. 

When he is not helping his clients find meaning and purpose, you can find Greg spending time with his friends and family, especially his wife, Sandy, children, and grandchildren. As a native Oregonian, Greg loves the outdoors, visiting the Oregon Coast, and retreating to their family cabin in the mountains. He enjoys staying involved with his church, reading, watching sports, and anything to do with exercise and wellness. To learn more about Greg, connect with him on LinkedIn.

Information provided herein is provided by Wellstone Wealth Management, LLC. This information is for general informational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Information was compiled from third-party sources believed to be reliable and accurate but cannot be guaranteed. Investment advisory services are offered through Oswego Wealth Advisors, Inc., an SEC Registered Investment Advisor. Neither Wellstone Wealth Management, LLC nor Oswego Wealth Advisors, Inc render any legal, accounting, or tax advice. All investments involve risk, are not guaranteed, and may lose value. We recommend that all investors consult with a qualified adviser to assess your personal situation before implementing any strategy. 

Please remember to contact your advisor when your financial circumstances or objectives change. Your advisor may recommend adjustments to your financial planning and investment strategies to better suit your current situation.