For years, you’ve been saving and investing for retirement.
But what happens when you finally retire and it’s time to switch gears from saving to spending?
It turns out, many people are so focused on accu¬mulating assets that they never really think about actually withdrawing the money. On average across all wealth levels, most retirees still have 80% of their pre-retirement savings after almost two decades of retirement, according to research from BlackRock.
The problem with uncertainty
So why aren’t these retirees spending their nest eggs? Some may be spending as little as possible to leave behind a larger sum for their loved ones or philanthropic pursuits. But in many cases, it’s because they aren’t sure how to determine a sustainable withdrawal rate that accounts for their total lifespan. They worry about the “what ifs” retirement may throw their way and want to be prepared. You may be able to relate.
This latter group understands that over the course of a long-term retire¬ment, inflation can erode sav¬ings. Portfolio returns can vary, and life costs can quickly escalate. In the UK, 54% of Gen X (aged 45-60) are worried their finances won’t cover their retirement, compared to 31% of baby boomers (aged 60-80) according to research by Standard Life. By spending less and allowing their savings to potentially grow in the early years of retire¬ment, they hope to offset some of the uncertainty.
Working with your wealth manager can help to increase your confidence in having sufficient funds for a comfortable retirement. Just like in your working years, you can establish a just-in-case cash cushion or line of credit that helps put you at ease. Having a sound distribution strategy in place – one that takes into account your income sources, lifestyle, asset locations and tax situation – can help you enjoy the retirement lifestyle you envisioned.
Withdrawing your money
When it comes to withdrawing your retirement savings, here are a few things to consider:
• Organise your expenses: Breakdown your costs into three main categories (e.g. food, housing and utilities), lifestyle expenses (travelling, hobbies) and unexpected expenses (repairs, medical). Consider covering your essential expenses with guaranteed income sources such as pensions or annuities. Income investments could be used to pay for lifestyle expenses, and maintain a cash reserve for any unexpected costs that might occur.
• Be flexible. For example, a downturn in the market is a good time to tighten the reins on your spending. If you experience some unexpected invest¬ment gains, the timing might be right for that dream holiday.
There’s little doubt your income needs will fluctuate during retirement. The early years may be filled with travel and other big-ticket items that require more substantial withdrawals. Studies show that spending tends to decline in the later years of retirement, most likely the result of less travel and similar pursuits. Building in flexibility allows you to go with the flow. Just be sure to regularly touch base with your wealth manager so your budget can stay on track.
• Review your plan. Work with your wealth manager to develop and review your retirement income and distribution strategies. You can run hypo¬thetical situations based on different withdrawal rates, how many years you will live in retirement or any other contingencies, which will allow you to develop a better idea of how much you can comfortably spend in retirement.
Everyone’s retirement situation is different. You may have encountered some unexpected circumstances, such as redundancy or forced retirement that occurred earlier than you planned, and you weren’t able to save as much as you hoped. On the other hand, leaving a legacy may be your primary goal.
Whatever the case may be, establishing a withdrawal strategy that’s right for you – while also keeping your emotions in check – is often a good plan of action.
Sources: blackrock.com; standardlife.co.uk; kitces.com; forbes.com; cnbc.com; ournextlife.com; smartaboutmoney.org; thestreet.com; kiplinger.com; myirionline.org
Bear market of 1974The severe bear market of 1974 threatened the existence of Raymond James, which was bleeding capital by the day. Tom James, his father and other leaders took extreme measures to keep the firm afloat, slashing costs, forgoing pay checks and even attempting to sell the firm for just enough capital to protect client assets and retain as many associates as possible. The story could have ended very differently if not for a sharp upturn and continued rebound in the stock markets late in the year. |
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Black MondayOn 19 October 1987, the stock markets experienced a dramatic plunge that prompted many firms to shut down their trading desks and turn off their phones to minimize internal losses. Raymond James refused to do the same. Our desks stayed open to help meet clients’ needs, resulting in our first and only unprofitable quarter since the firm went public in 1983. |
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Who was Raymond James?The Raymond in our name is actually from Edward Raymond, owner of a 15-employee mutual fund sales group, Raymond and Associates, along Florida’s west coast. He sold his company to Bob James on 15 July 1964, on condition that the surviving firm be called Raymond, James & Associates. Three days after the sale, Ed Raymond was involved in a near-fatal automobile accident and never joined the firm. Nonetheless, even after Raymond had passed away, Bob James insisted that his name remain on the door – ahead of James’ own. That was a promise he made to Ed Raymond three days before the accident, and Bob James was a man who kept his promises. |
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Taking Raymond James PublicWhen consideration was being given to taking Raymond James public, Tom James penned a letter to shareholders (largely employees at the time). ” … the public offering should be considered as a statement of our independence. While this is a psychological rather than an economic rationale, it is nonetheless very important. We have asserted for some time that we are not interested in becoming a small part of a very large corporation. That assertion results mainly from the inclinations of management rather than the economic benefits associated with either alternative. The public stock offering affords us the opportunity to enjoy a little bit of the best of both worlds. While shareholders will be given liquidity at fair market value, we will still have the ability to control our own destiny.” After 40+ years of Tom’s leadership, upon becoming CEO, Paul Reilly was often questioned about whether the company might ultimately surrender its cherished independence and be acquired by some larger entity. His response: “Not while I’m around.” It’s a theme that continues today. |
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