My number one tip when it comes to getting ready to retire without stress is simple, but do this wrong, and your retirement will suck.
Do not try to have one big portfolio that generates enough income for you to spend each year.
If you do this, you will worry about your retirement like some mediocre employee always worries about losing their job.
Instead, you need to hoard the funds you need for spending for the first 3-5 years of retirement and “hide them under different rocks”.
Meaning you should plan out all the after-tax money you will need each year for the next 3-5 years.
Why do I say 3-5 years?
Because if you have a good retirement advisor, your accounts should replenish themselves every five years (that’s tip number two: have a good advisor who will set up your accounts intelligently).
Notice how I said accounts?
Tip number 3, have multiple retirement accounts that feed into your spendable cash pot.
Most people’s retirement plan is to have one pot of money, and to have that one pot of money generate the income they need each year in retirement.
But that’s the worst way to set up your retirement plan.
Because instead of enjoying your much-deserved retirement, you end up with sleepless nights worrying if the portfolio will actually generate that cash each year.
Especially in times of volatility in the market.
If you set it up this way, I promise you will feel like you need to hoard your cash, and you will have anxiety every time you want to plan a vacation or make a large purchase- even if you have plenty of money to afford it.
I’ve seen people become so overwhelmed by making small purchases that they shut down and end up living in doubt, afraid to live the retirement they dreamed of.
But you can avoid that by having multiple retirement accounts that contain safe, well-researched investments that will pay out for years with little effort on your part and without constant fear of loss.
For example, when setting aside money for clients in the first year, I typically use CDs- no surprise there.
However, for the second and third years, there are liquid funds that pay around 7% and are liquid every 30 days.
Or, right now, you might also be able to find a few bonds with 1-2 years of maturity, paying between 5-7%, but that will likely go away again soon.
For the fourth and fifth years- principal protected structured notes. And so-on… This is why I harp so much on things like Structured Notes, real estate investments, and certain other funds.
These investments make retirement much less stressful. They can bear the weight of generating income while your other investments ride the ever-increasing and falling tide (mostly rising) of the stock market over time.
So I guess my number one piece of advice is actually, don’t think of your retirement as one big pool of money, but rather a well of spendable cash that is replenished over 3-5 year periods of time by the rest of your retirement accounts.
Now, if your wealth advisor is not telling you these things or they are just using bond funds (GASP!) to “generate income,” you may need to take a hard look at why you are paying them (and what you are paying them).
At Jones Financial Wealth Management, we know how to ensure that you don’t ever worry about playing more golf or planning that trip around the world, as described by my client Denise Menelly, former COO and CIO at CIT Bank, in this podcast episode, which you can listen to HERE.
P.S. This is not a sales blog, and I’m not a salesman, but I’ll tell you, if you want to work with an independent advisor who truly cares about you and setting up your retirement in a stress-free way like Denise describes, then reach out to me. Just reply to this email or give me a call at (401) 406-8090