Should you find a new financial professional when you’re approaching retirement? paid Impact_Partner
While you are working, the two main objectives are to consistently contribute to your retirement and make sure that your accounts are growing – that’s it. Typically, these accounts are invested nearly 100% in investments that have market risk such as stocks, bonds, mutual funds, ETFs, etc. During this time, while losses are never the goal, you are better able to ride out a market correction or bear market with time for your account to recover while you are not taking income from these accounts.
What exactly is a “sequence of returns” risk, and why is that important in retirement planning? It is the risk of significant market losses early on in. If one experiences losses early in their retirement, these losses have a significant impact on how long one’s money will last and could increase the risk of running out of money. Once you are retired, you no longer have the same income stream to pay expenses.
Some advisors are not aware of the best strategies to help transition their clients from the accumulation phase into the income phase of retirement. They can often believe that the same strategy that helped their clients during their working years is sufficient for retirement and simply advise their clients to withdraw a certain percentage each year during retirement. Unfortunately, in some cases, this can be very unhelpful.
A third consideration is how to reduce or potentially eliminate taxes during your retirement, including tax on Social Security benefits. Tax planning is most effective when done prior to retirement as there may need to be a shift in one’s current savings strategy leading up to retirement. However, many advisors who have helped their clients grow their assets during their working years may not be aware of strategies that help minimize taxes during retirement.
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