Joseph F LoPresti: A Proper Retirement Income Plan

You’ve worked for your money, and retirement is the time to have your money work for you. But what does this mean? Basically, your goal in retirement should be to turn what you’ve saved into retirement income. Many Americans are worried about running out of money, since pensions are rare and because of social security’s decreased buying power. But if you’ve saved a substantial nest egg of 1 million dollars, the challenge becomes how to help make your savings last for the rest of your life.

The 4% (or 3%) Rule

You may have heard of the 4% rule, which says that you can safely withdraw 4% from your nest egg per year without running out of money in retirement. Some experts advise a more conservative approach of withdrawing 3% of a nest egg’s value per year instead of 4%. The idea is that by limiting withdrawals, you can maintain a withdrawal rate for a longer period of time by allowing your nest egg to continue growing. However, in our opinion, these rules of thumb are too general in nature and don’t address your specific situation. For example, how do taxes factor into your retirement income scenario? The tax implications of each withdrawal are dependent on the type of account and various other factors.

Avoid Rules of Thumb

Generic rules of thumb are only that, rules of thumb. For something as important as analyzing whether or not your nest egg will last the rest of your life, how can you be confident in a plan that does not take your personal circumstances into consideration? Why risk paying more taxes than necessary and increasing the chances of outliving your money? Why risk making a sub-optimal decision on claiming Social Security for you and your spouse? Rather than taking a generic approach to retirement income planning, consider developing a plan that takes all of the moving pieces into account. A proper plan strives to reduce your tax liability, coordinate Social Security strategies, optimize Roth conversion strategies, minimize Medicare surcharges, and extend portfolio longevity.

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Which retirement income strategy is best for you depends on your unique financial situation and retirement goals. A professional here at Arlington Capital Management can help you create a Lifetime Retirement Income Plan that fits your needs. Transitioning from contributing to retirement accounts and accumulating wealth to withdrawing is significant, which is why we offer complimentary financial reviews. Sign up to take the first step towards creating a retirement income plan.