Retirement signifies an important and exciting milestone, as you leave the work force and enter into a new rhythm of unlimited free time. When it comes to your finances, the early years of retirement lay the groundwork for your enduring financial well-being. In this article, we share the most common financial planning challenges during the first 10 years of retirement and offer insights on overcoming them so you can experience the retirement lifestyle you’ve earned.

Not Creating 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 Roth IRAs and Roth 401(k)s are taxed beforehand, so the money is withdrawn tax-free.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—which I’ve seen for the vast majority of taxpayers in my experience. A good tax goal is to create a lifetime tax savings plan; rather than just looking at one year, plan how to pay the least amount of taxes over an individual’s lifetime. 

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.

Overspending in Retirement

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. Even if you think you know what you are spending, it’s always good to get another opinion. A cash flow analysis allows us to truly see where the funds are going; a lot of individuals are spending double what they think.

Ignoring 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 compared to the historical average inflation rate of 1.23%. 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. Most of the funds you have invested likely won’t be needed for many years down the road; it’s important to have an investment allocation that is aligned with your cash needs. 

Not Having 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. 

It used to be recommended to have 3 to 6 months of expenses saved up in an easily accessible savings account, but now more professionals are recommending at least 12 to 18 months’ worth. 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. 

Creating a Strategy on Your Own

After years of strategic financial planning, your wealth has grown to the point where you are comfortable enough to consider what retirement will look like for you. It’s an important time to think critically about your decisions so you can avoid these common challenges. Partnering with a trusted financial advisor can make all the difference between depleting your retirement fund and making it last a lifetime. We value developing relationships that take stress away from our clients so you can worry less about money and more about how you are going to spend your time!

At Rosemeyer Management Group, we support our clients by guiding them through the complexities of retirement, providing personalized strategies to safeguard your financial well-being. Let us be your partner in creating a stable and long-lasting retirement. Reach out to schedule an introductory appointment online or by calling us at 608-348-2274. For any questions, feel free to reach out to me at kaley@rosemeyermg.com. 

About Kaley

Kaley Bockhop is an investment advisor representative at Rosemeyer Management Group, an SEC Registered Investment Advisor based in Platteville, WI. Kaley’s experience in taxes and accounting and her financial planning expertise allows her to help her clients work toward their retirement goals and set themselves up for success. It is Kaley’s goal to partner with her clients to build a customized road map for their finances so they can look forward to a comfortable retirement and decrease financial worry. Kaley is a CPA and a CERTIFIED FINANCIAL PLANNER™ professional. She has a bachelor’s degree in science from the University of Wisconsin-Platteville with a triple major in accounting, agricultural business, and animal science, and a minor in biology. In her free time, Kaley enjoys working on her family’s farm where they raise nationally recognized registered Angus show cattle. She also loves exercising and traveling. To learn more about Kaley, connect with her on LinkedIn.