5 Financial Planning Challenges & Solutions for Retirees

Why You Need a Thoughtful Financial Strategy in this Phase of Life

As you approach retirement, it can feel like the end of a marathon. You’ve spent decades planning, saving, strategizing, and calculating, and you may be hoping to leave that all behind you. However, in order to fully enjoy your golden years, it can be just as critical to making thoughtful financial decisions as it was leading up to your retirement. Here are five suggestions for how to tackle five common financial planning challenges for retirees in the first decade of retired life.

Challenge #1: Not Following a Withdrawal Strategy

The money you saved throughout your working life must sustain you throughout the entirety of your retirement – about 20 years, on average, based on life expectancy trends. You need to make the most of your savings, which means following a tax-efficient withdrawal strategy. To do so, you should consider the different types of accounts you have, since they are taxed at different rates. For example, 401(k)s and traditional IRAs are taxed at your ordinary income tax rate when you make withdrawals. Conversely, Roth IRAs and Roth 401(k)s are funded with after-tax dollars, meaning you can withdraw your money tax-free when you’re retired. If you have funds in a taxable investment account, you’ll be taxed at the capital gains rate.

Once you understand the various tax rates you face, you can calculate how much to withdraw from each account – and when – in order to avoid a hefty tax bill and stretch your savings further. A trusted financial professional can help you develop your strategy and execute it effectively.

Challenge #2: Neglecting to Budget

One of the most wonderful things about retirement is that you have time to do all the things you never got to do during your working years. You might travel the world, start a passion project, learn a musical instrument, or work on your golf game. The possibilities are endless, but your savings are finite. It’s easy to underestimate the amount you’ll spend in your first few years of retirement doing all the fun things you’ve been looking forward to, and overspending is common. It is also incredibly damaging to the longevity of your assets.

The solution is to create a spending plan from day one. Use your withdrawal plan to calculate your monthly income, then create a budget that covers all your necessities and allows for “extras” too.

Challenge #3: Turning a Blind Eye to Inflation

Many new retirees immediately begin to play it safer with their investments. After all, the markets are volatile and retirees shouldn’t take on too much risk, right? Well, while it’s true that many investors’ risk appetite will change at various phases of life, playing it too safe can do more harm than good by leading to inflation risk for new retirees. For example, as healthcare costs continue to skyrocket, you’ll feel the effects of it in retirement when healthcare is a necessary expense – often more so as we age. If your portfolio isn’t keeping pace, your buying power diminishes.

Since your retirement may last several decades, inflation poses a significant threat to your savings. You can work with a registered investment adviser (RIA) to help you develop the proper risk profile in your portfolio so you can balance principal protection with opportunities for growth.

Challenge #4: Thinking You No Longer Need an Emergency Fund

You probably heard the advice over and over during your working years to set aside an emergency fund with at least six months’ worth of your expenses in case of job loss or a major, unexpected expense. In retirement, the stakes are even higher because you no longer have a paycheck (or the option to file for unemployment). That’s why it’s smart to maintain an even larger emergency fund once you retire. Having 12-18 months’ worth of expenses in high-yield savings account you can easily access will help you cover unexpected expenses, with the added benefit of providing you with additional financial stability during an economic downturn.

Each retiree’s circumstances are different, so you may want to consult with a financial professional before deciding how much to keep in your emergency fund. They can help you with pensions or other guaranteed income streams.

Challenge #5: Going it Alone

Even if you personally handled all your finances up until this point, retirement is a different ball game. Partnering with a financial advisor can be helpful in multiple areas of financial planning for retirees, which can position you so you don’t outlive your nest egg.

Final Thoughts on Financial Planning Challenges for Retirees

Your retirement should be full of the things you’ve always dreamed of – not fraught with financial stress. If you’re already retired, or if you’re nearing this transition, it’s a great time to seek out assistance in developing a financial plan that helps you accomplish your retirement goals while keeping you on firm financial footing, too. If you’re interested in speaking with one of the experienced professionals on the Aviance Capital Partners team, please reach out today <hyperlink to web form>. We look forward to hearing from you!

Aviance Capital Partners, LLC (“ACP”) is an SEC-registered investment adviser located in Naples, Florida. Registration as an investment adviser is not an endorsement by securities regulators and does not imply that ACP has attained a certain level of skill, training, or ability. While information presented is believed to be factual and up-to-date, ACP does not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. The tax and estate planning information provided is general in nature, which should not be construed as specific financial planning or tax advice tailored to an individual reader. ACP suggests that readers consult a financial professional, attorney or tax advisory professional about their specific financial, legal or tax situation. Past investment performance does not guarantee future results. All investment strategies have the potential for profit or loss, and different investments and types of investments involve varying degrees of risk. There can be no assurance that the future performance of any specific investment or investment strategy, including those undertaken or recommended by ACP, will be profitable or equal any historical performance level. Additional information about ACP, including its Form ADV Part 2A describing its services, fees, and applicable conflicts of interest and its Form CRS is available upon request and at https://adviserinfo.sec.gov/firm/summary/146597.

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