top 5 retirement planning challenges

We often think of retirement as a payoff, in more ways than one. It’s the culmination of all you accomplished throughout your working years. It’s a new journey, unlike anything you’ve ever experienced. You leave the comforts of a steady paycheck and structured schedule and head into the unknown. 

The early years of retirement can also be a source of undue stress. Heading off possible obstacles is an important component of a sound retirement plan. Most retirees face the same 5 financial planning challenges during the first 10 years of retirement. Let’s take a deeper look.

1. Lacking a Withdrawal Strategy

Financial planning doesn’t stop once you enter retirement. Capitalize on your wealth by deciding the most tax-efficient way to withdraw funds in your golden years. 

Different financial accounts are taxed at different rates. Traditional IRAs and 401(k)s are taxed at the ordinary income tax rate when you withdraw. Roth IRAs and Roth 401(k)s are taxed beforehand, so the money is withdrawn tax-free. Funds in a taxable investment account are taxed at the capital gains tax rate, which is different from your ordinary income tax rate. 

As you can see, calculating the best time to pull from each account is enough to give anyone a headache. But the last thing you want is to get hit with a hefty tax bill.

Create a withdrawal strategy with the help of a trusted professional who can make sure you’re withdrawing funds at a sustainable rate and that you’re doing it in a tax-efficient way.

2. Overspending Early On

Many people spend their retirement years doing all the things they never got to do when they were working—starting a passion project, remodeling the house, traveling the world, and more.

It’s easy to underestimate the amount of money you’ll spend those first few years when you don’t account for all these “extras.” Overspending, even for a short period, can shave years off the longevity of your assets. My advice? Create a spending plan. Calculate your monthly income given your withdrawal strategy (See #1) and then create a budget. 

3. Not Paying Attention to Inflation

Another major challenge we see new retirees face is the desire to play it safe in the stock market. This does more harm than good as it leads to inflation risk. 

While healthcare expenditures are typically affected less by inflation than other spending categories, from 2021-2022 there was a 4.0% increase in medical care services (1) compared to the historical average inflation rate of 1.23%. (2) What does this mean? Retirees are more likely to feel the effects of inflation due to mandatory expenses, such as healthcare costs. 

As tempting as it may be, resist the urge to worry about short-term stock market volatility. With a retirement that could easily last 20 to 30 years, inflation is still the biggest threat to your nest egg. Sit down with a trusted professional who can help you strike a balance between protection and growth. 

4. Overlooking an Emergency Fund

Could you comfortably pay an unexpected, major expense in retirement without jeopardizing your financial future? For most of us, the answer is no. Just as you were taught to have an emergency fund in your formative years, it’s even more critical to have one in your retirement years. 

Most professionals recommend having at least 12 to 18 months of expenses in an easily accessible savings account. (3) This may sound like a lot, but an emergency fund serves two purposes: it covers unexpected expenses and it provides stability during economic downturns. This means you can optimize your portfolio to beat inflation (#3 on our list) while having a safety net to fall back on. 

5. Planning for Retirement Alone

It took decades of hard work to reach this pinnacle. You have spent time and energy growing and preserving your wealth. Now is not the time to improvise. Having a trusted financial advisor by your side can be the difference between having a retirement fund that dries up and having one that stays the course and endures until the end. 

As your financial planning partner, I can help mitigate the stress that transition may cause by listening and working with you on a financial plan that gives you confidence and comfort. Find out more today by scheduling a complimentary consultation. Reach out to us at (201) 612-6626 or info@rjlusa.net

About Jerry

Jerry Clark is the Founder and Principal at RJL Financial Group, an independent financial advisory firm dedicated to supporting and empowering their clients so they can enjoy life without financial worry. With more than 20 years of experience, Jerry specializes in guiding his clients through transitions, whether that be retirement, divorce, or widowhood. His tailored services and strategies help set clients up for the retirement they dream of, overcoming challenges and taking advantage of opportunities along the way. Jerry is a former golf pro who would play every day if he could! Inspired by his sports coaching background, he aims to motivate and empower pre-retirees and retirees to achieve predictable savings results, giving them the ability to feel secure about their future. Jerry is known for going the extra mile for his clients and building relationships that make his clients feel like family. 

When he’s not working (or playing golf), Jerry loves spending time with his wife, Lisa (whom he’s known for 40 years!), and their two grown daughters, Riley and Josie. You can often find him working or relaxing at his beach house in South Bethany, Delaware. To learn more about Jerry, connect with him on LinkedIn.

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(1) https://www.investopedia.com/articles/retirement/052616/how-inflation-eats-away-your-retirement.asp

(2) https://www.zippia.com/answers/what-is-the-average-inflation-rate-each-year/?survey_step=step3

(3) https://www.thebalance.com/how-much-emergency-savings-do-retirees-need-4582473