Rethinking Traditional Retirement Beliefs
After a down market don't worry, your money will come back
This may be true during youraccumulation years when you have a long time frame. However it is a different scenerio during your distributionyears. When& creating income during a down market, more shares will have to be sold to create the equivalent income, leaving less shares (and investment) to come back when the market recovers. Managing volatility, not just returns, becomes much more important during your retirement years. The question isn't if the market will come back, but will your money come back?
I will need less income during retirement
The old rule of thumb was that during retirement you will only need 70% of your current income. This may or may not be true as every retirees circumstance is different. One thing to keep in mind is the ever changing landscape of taxes. You may no longer be able to claim child tax or mortgage deductions (if mortgage is paid off). Additional items to consider are possible higher medical bills, future long term care needs and the devasting effect of inflation (the rising cost of goods and services). Especially since people continue to live longer, it may be time to revist this old cliche'.
Wealth Accumulation vs. Retirement Income Distribution
Investments should be managed differently as someone transitions from the accumulation phase into the disrtibution phase. Trying to create predictable income, in an extremely volatile market, by managing return can be very daunting and risky. Most Financial Professionals will tell you that a 4% withdrawal rate is the maximum someone should take to reduce the risk of running out of money. Even withdrawing that small of a percentage is not guaranteed. When you're trying to create income and the inevitable market downturn hits, will you have the time frame and the assets to recoup substantial losses? We believe income distribution strategies should be managed differently from asset accumulation strategies. This is the cornerstone of our RS Process: your Retirement Survival guide.
Assuming you will be in a lower tax bracket
Just because someone has entered into retirement it doesn't necessarily guarantee they will be in a lower tax bracket. The majority of retiree's wealth has been accumulated in tax-deferred accounts that will be taxed upon withdrawal at ordinary income rates. And who's to say that taxes won't be higher in the future? Another important consideration is if your social security will be taxed. The link below is an important site for any one considering retirement. The income you withdraw from tax deferred retirement accounts such as IRA's, 401k's, 457, 403b, pensions, continued employment, etc, may cause your social security to be taxed.