Retirement Planning: It’s More Than a Savings Plan


This material was prepared for Randy Neumann Wealth Management’s use.

Retirement planning is more than a savings plan. We all retire at different stages and then need financial stability to maintain a lifestyle we’ve been planning for. Retirement planning includes structuring and diversifying investments in such a way that work toward a goal to identify what’s possible for the duration of your retirement. There are various components and objectives that factor into retirement income strategies.

Retirement Planning, Randy Neumann Wealth Management NJ

Let’s review some of these components:

Analyzing Your Position
When it comes to retirement planning, it’s never too late. That said, the earlier you embark on the journey, the more options and leeway you will have to chart a course to suit your lifestyle goals. Wealth Managers are trained professionals who can offer insight and guidance to help plan your financial pathway toward retirement.

Retirement Income
If you are going to plan financially for your retirement, it helps to have and idea of what you will need to fund your lifestyle for the duration of retirement. You can begin by considering your retirement goals.

  • What kind of lifestyle do you plan to lead after retirement?
  • What are your travel plans?
  • What will your budget be?
  • At what age do you plan to retire?
  • What income are you planning to live on during your retirement?
  • Are you planning to work after retirement?
  • Where do you want to live when you retire?

All these are factors that will directly affect your living costs after you retire. To get some perspective, look at your current expenditures and determine how you think your expenses will change after you retire.

Planning Distributions
Since it’s likely that you will no longer be working and earning salary income in your retirement, you may be drawing from your savings, 401Ks or possibly a pension. The challenge is how to distribute these nest eggs for the duration of your retirement to have a lifestyle you’ve imagined for yourself.

But this is a complex question because not many of us know how long we expect to live. Here are some questions to consider when planning your distributions:

  • What is your life expectancy?
  • What changes do you expect to have in your cost of living after you have retired?
  • Do you have any special health condition that will require extra costs and attention?
  • How much do you expect to spend on healthcare after you have retired?
  • How do you expect your retirement investment accounts to perform?

While these might seem like impossible variables to determine, Financial Planners can provide some insight into calculating the amount of money that you are likely to need for the duration of your retirement. 

A recent survey by T. Rowe Price has shown that retirees live on approximately 66% of their pre-retirement income during the first three years. Once this figure has been determined, there are various models that are used in calculating the distributions of tax-qualified retirement investment accounts.

One model assumption is that once you have retired, you are going to need about the same amount of money every year for the duration of your retirement with adjustments made for inflation. Based on this assumption,  you could typically draw approximately 4% from your retirement accounts every successive year with adjustments made for inflation. However, financial experts’ recommended safe withdrawal rates have changed over the years.

Retirement Income Investment Strategies & Products
Stretching investment distributions for 25 or 30 years may seem like an impossible task but there are various strategies and vehicles that you may use to work toward a formidable retirement investment nest egg and smooth your way into retirement. These include the following:

Deferred Compensation
Deferred compensation plans are a type of arrangement where parts of your income are paid out at a later date. The advantage with these plans is that the tax liabilities will be hitting you at a lower income bracket and you are also able to defer the taxes to a later date when you will finally be receiving the income. Deferred compensation is only available to employees of public entities, senior management, and other highly compensated employees of companies.

Annuities are another retirement investment product. An annuity is an insurance product that will pay out a steady income at a later date. In this case, you invest in an annuity which will subsequently make monthly, quarterly or annual payments at a future date, preferably in your retirement years. There are various factors that go into determining the size of payments that you can make into your annuity. You can also choose to receive the payments over a set number of years or until death.  Guarantees apply to certain insurance and annuity products and are subject to product terms, exclusions and limitations and the insurer’s claims-paying ability and financial strength.

Managed Accounts
Managed retirement accounts offer an asset allocation strategy of stocks and bonds not strictly age-related. For example, a Financial Planner can look at your 401 (k) balance and income to recommend a suitable asset allocation strategy.  In order to provide a complete comparison, the following points must be discussed for each product:

  1. Investment objectives
  2. Sales and Management Fees
  3. Liquidity
  4. Safety
  5. Guarantees
  6. Fluctuation of Principal and/or Returns
  7. Tax Features

With professionally managed accounts, you have the leeway to refine the stocks-bonds allocation by factoring in financial goals and risk exposure that you are comfortable with.

Private Money Managers
If you have retirement funds to invest, investment vehicles such as mutual funds are often an option.  However, there are investors who prefer working with private money managers. These are individuals or companies that manage certain asset classes depending on the style or preferences of the investor. Private money managers don’t generally manage whole portfolios. They specialize in large niches such as large-cap value stocks.

Roth IRAs
Roth IRAs are individual retirement accounts that are funded with a contribution that has been taxed. As a result, all the future withdrawals that you will make on your Roth IRA account can be tax-free as long as they are considered qualified. Limitations and restrictions may apply. A Roth IRA allows your money to grow without any tax obligations. They generally offer more flexibility than traditional IRAs and the investor can withdraw their money at any time without any penalties as long as it’s done after the age of 59 ½. Roth IRA’s also do not impose required minimum distributions allowing you to leave money in the retirement account for as long as you wish. This is in contrast to traditional IRAs where, in general, you begin making the withdrawals for required minimum distributions once you have hit the age of 70 ½. Withdrawals prior to age 59 or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.

Stocks and Bonds
When investing your retirement funds, you might decide to divvy up your assets between stocks and bonds in order to diversify your assets or balance risk with reward. Stocks are relatively risky but can potentially have a higher rate of return. Bonds, on the other hand, are a more conservative investment vehicle. If you are still young, you might decide to develop an asset allocation strategy that trends more towards stocks than bonds.
However, as you grow older and become more risk-averse, your asset allocation could trend more towards lower risk vehicles.

What retirement investment strategy are you using to help preserve and build your assets as you head into retirement? Please feel free to share with us.

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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine with investments(s) may be appropriate for you, consult your financial advisor prior to investing. Before investing, consider the investment objectives, risks, charges and expenses of the annuity and its investment options. Investing in mutual funds involves risk, including possible loss of principal. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price. Asset allocation does not ensure a profit or protect against a loss. Investing involves risk including loss of principal. No strategy can ensure success or protect against loss.