Are You Spending Your Legacy?
Retirement is supposed to be a well-earned reward – a time when you can stop worrying about the day-to-day struggles of your career, and everything that went with it. A time to enjoy your family, and to scratch a few things off your bucket list. Confronted with so much freedom, it can be tempting to do all those things without considering a plan going forward. While we find that most of our clients aren’t afraid of running out of money for themselves, many of them do want to leave a legacy to help their children or grandchildren.
So how can you ensure that you’ll be able to have the retirement you want and still help your loved ones? It all comes down to your spending rate. To find your rate, start by adding up your expenses, and subtract that from any non-portfolio income you might be receiving in retirement. That can mean things like rental property income, annuity income, or even Social Security. The amount left over is what you’ll need to withdraw. You can divide that by your total portfolio, and there’s your spending rate!
Most financial advisors will recommend a 4% spending rate. But keep in mind that financial professionals have arrived at this rate by making a number of assumptions. They are:
1. That you’ll want a steady and consistent income
2. That your portfolio asset allocation is aligned with your financial goals and risk tolerance
3. A 30-year retirement
But there are other things to consider, any or all of which can change that equation for you. For example, if you retire early, you may want to take less than 4% out to account for a longer retirement, and the opposite is true if you retire later. A similar point can be made about your asset allocation. If you’re more conservative and bond-heavy, you may again want to reduce your spending as well. Or, if you have a higher risk tolerance and more equities, you may be able to spend more. With this last point, it’s also important to consider market performance, and realize that greater risk doesn’t always mean greater reward. Generally speaking, retirees who encounter a financial event like that of 2008 greatly reduce the future sustainability of their portfolios.
What is the right strategy for you? There is no one-size-fits-all answer. You may decide that you want to travel early on in your retirement and slow down later. You may decide that you want to set more aside in case of the unexpected, or for long term care.
There are many strategies you can employ, besides simply limiting your expenditures to 4% of your portfolio. Some people use a hybrid approach, timing their spending with market movements so that when the market is up, they can spend more. Some take the 4% adjusted for inflation, but forego the inflation adjustment in challenging times. Working with an independent advisor like Lineweaver Financial Group can offer you more choices in terms of your portfolio, as well as advisors who are more experienced working with a wider array of companies and products.
We can help you to think through these and other difficult choices, and can lend our 24 years of experience helping clients get the most out of their retirement. Call us today for a no-obligation phone call to start the conversation at 216-520-1711, or email us at Quarterback@Lineaver.net.