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Entrepreneur
3 hours ago
- Business
- Entrepreneur
The Smart Money Order: Why Most People Get It Wrong
I recently watched a talk by Steve Chen, founder of CALLTOLEAP, where he outlined the optimal order for allocating your money if you bank with major institutions like Chase, Wells... This story originally appeared on Due I recently watched a talk by Steve Chen, founder of CALLTOLEAP, where he outlined the optimal order for allocating your money if you bank with major institutions like Chase, Wells Fargo, or Bank of America. His advice struck me as both practical and eye-opening, especially considering how many of us are making critical mistakes with our financial planning. As someone who has helped many friends organize their finances, I've seen firsthand how people often jump straight into investing without building the proper foundation. Chen's approach offers a clear roadmap that I believe everyone should follow. The Right Order for Your Money Chen outlines a five-step approach that makes perfect sense when you think about building wealth strategically: This hierarchy prioritizes security and tax advantages before jumping into the stock market through regular brokerage accounts. It's a sensible approach that too many people ignore. The post The Smart Money Order: Why Most People Get It Wrong appeared first on Due.
Entrepreneur
16 hours ago
- Business
- Entrepreneur
Unpacking Annuities: Can You Really Trust This "Guaranteed Income" Promise in Retirement?
There is a good chance that annuities have come up in any retirement discussion or when you sat down with a financial advisor. And, for good reason. Annuities are often... This story originally appeared on Due There is a good chance that annuities have come up in any retirement discussion or when you sat down with a financial advisor. And, for good reason. Annuities are often promoted to guarantee a steady income and financial security. Despite this, annuities can seem too good to be true, especially when they claim to provide lifetime income. However, before you sign anything, take a step back and ask yourself: Can you really trust an annuity? It depends on what kind you're considering, who's selling it, and if it fits your financial goals. Read on to learn what annuities are, their pros and cons, and what to watch out for before you invest. What Exactly is an Annuity, Stripped of the Jargon? At their core, annuities are contracts between you and an insurance company. It turns a lump sum of savings (or a series of payments over time) into a steady, predictable income stream. Think of it as a bridge between your accumulated wealth and your retirement needs. Although annuities sound straightforward, there are many types, each with its own characteristics. Typically, within one year of paying the insurance company a lump sum, you begin receiving regular income payments from an immediate annuity (also known as a single premium immediate annuity or SPIA). Those who have already retired and need income right away often choose this option. Some Immediate annuities can begin soon after the paperwork is done and money deposited. Unlike immediate annuities, deferred annuities allow you to grow your money before receiving payments. Whether you contribute a lump sum or make periodic payments, the money accumulates interest or investment gains. Typically, payments begin when you retire. Before income starts to flow, this 'deferral' period allows for potential growth. This is the most straightforward type. For a set period of time, the insurance company will pay a fixed interest rate on your contributions, and your payments will also be fixed and predictable. As a result, your income stream will remain stable and predictable. There is more risk associated with these because they are more complex. You contribute money to various sub-accounts (similar to mutual funds), and the value of your annuity and your eventual income payments will fluctuate based on the performance of these underlying investments. Despite their growth potential, they are also subject to market risks. Indexed annuities (Fixed Indexed Annuities or FIAs). These annuities attempt to strike a balance between the two. To protect against market losses, they often have a 'floor' (a minimum guaranteed return, frequently 0%) linked to a specific stock market index, like the S&P 500. In addition, they usually restrict your earnings, so you won't earn everything the market does. The Allure of the Annuity: Why Do People Choose Them? A primary reason people buy annuities is the promise of guaranteed income. An annuity can feel like a lifeline in an age when defined-benefit pensions are largely gone and retirees worry about outliving their savings. Why? It functions like a 'personal pension' that delivers consistent cash flow no matter what happens in the markets or how long you live. Annuities offer several benefits to individuals. Lifetime income. Annuity contracts often ensure payments for life, or even for the joint lives of you and your spouse. The assurance that essentials like housing, food, and healthcare will continue to be covered for as long as you live can bring immense peace of mind. Tax deferral. In a deferred annuity, earnings are tax-deferred. You don't have to pay taxes on investment gains until you withdraw the money in retirement. This may be an appealing option if you are still working and in a higher tax bracket or anticipate being in a lower bracket later. Protection from market losses. Annuities, particularly fixed annuities and indexed annuities, protect against stock market declines. Your principal and interest rate are guaranteed whenever you purchase a fixed annuity. Although gains on an indexed annuity might be capped, your principal is typically protected. Protected assets. In states like Florida and Texas, annuities and cash-value life insurance policies are fully protected from creditors and bankruptcy courts, largely to protect retirees. Some states offer limited exemptions or none at all; others offer no protection at all. Whether an annuity is protected depends on specific terms, such as qualifying events and payment amounts. Death benefits/estate planning. In some annuities, you can designate a beneficiary to receive the remaining value or a specified payout if you pass away before receiving all payments. This is an additional layer of protection for your loved ones. It all sounds pretty compelling, doesn't it? A secure, predictable income stream, tax advantages, market protection, and possibly even asset protection can provide financial peace of mind. Nonetheless, this is precisely where trust becomes crucial. Where the Trust Can Falter: The Downsides and Red Flags of Annuities A retirement annuity is not inherently a 'bad' investment. In certain circumstances, they can be handy for specific individuals. However, they are undeniably complex, often come with significant costs, and, more importantly, are not always sold with your best interests in mind. Here are some common red flags and pitfalls you should know before signing any contract; Exorbitant fees. This is the biggest concern in many annuities, particularly variable and some indexed ones. Over time, multiple layers of fees can significantly erode your returns. Some of these include: Mortality & Expense (M&E) charges. Annuities have insurance components that charge these fees. Annuities have insurance components that charge these fees. Administrative fees. The fee for managing the annuity contract. The fee for managing the annuity contract. Investment management fees. Variable annuities have the following underlying investment options. Variable annuities have the following underlying investment options. Rider costs. An additional fee may be charged for optional features or guarantees (e.g., guaranteed lifetime withdrawal benefits). An additional fee may be charged for optional features or guarantees (e.g., guaranteed lifetime withdrawal benefits). Surrender charges. This is perhaps the most painful. You can be penalized up to 10% of your initial investment if you withdraw your money before a specified period (the surrender period), which is often 7-10 years. Long lock-up periods (lack of liquidity). A surrender charge is imposed as a direct consequence of long lockup periods. It often takes years, sometimes a decade or even longer, before you can access your principal without incurring hefty penalties. Your money can effectively be 'stuck' if your life circumstances change unexpectedly — you require emergency funds, encounter an unforeseen expense, or simply decide you no longer want annuities. Overly complicated terms and riders. There is no denying that annuity contracts can be dense and filled with financial jargon. A rider is an optional feature that can be added to an annuity (for example, guaranteed income floors, enhanced death benefits). Despite their apparent appeal, these riders are often expensive and require a meticulous fine print reading to understand their actual value, limitations, and how they interact with the core contract. There's much to misunderstand regarding what you're receiving and giving up. Aggressive and misleading sales tactics. Trust is perhaps the most critical issue. After all, it is common for commission-based agents to sell annuities. Since the agent's income is directly related to the product's sale, it potentially incentivizes them to place their paycheck before finding the best solution for your financial well-being. High-pressure sales pitches are often targeted at seniors, along with exaggerated promises of returns and downplayed explanations of fees and liquidity restrictions. You should be wary of advisors who push you to decide immediately. Lack of flexibility. Unlike other investment vehicles that allow easy access to your money, annuities often provide limited flexibility once your money is committed. If you decide to deviate from this income stream, it can be difficult or costly. The Annuity Interview: Crucial Questions to Ask Before You Buy Before you ever sign on the dotted line, arm yourself with knowledge. To start, identify the questions you should ask yourself and any financial advisor you may be considering annuitizing with. Their answers to your annuity questions and willingness to provide clear, unbiased information will indicate their trustworthiness. 'What precise type of annuity is this, and how does it truly work?' Find out whether it's fixed, variable, or indexed and how the returns, risks, and payments are calculated. 'Provide a complete, itemized breakdown of ALL fees.' This is non-negotiable. All fees should be listed in writing, including commissions, annual expenses, riders' costs, and, most importantly, surrender charges. Also, understand the percentages and timeframes that apply. 'What is the surrender period, and what are the penalties for early withdrawal?' Understand how long your money is locked up for, as well as the financial consequences if you need to access it early due to an emergency or change in plans. 'If there are any guarantees, how are they backed?' Be wary of verbal assurances. If you want a guarantee of income, a minimum return, or protection of your principal, ask for written documentation. The insurance company's financial strength (see next point) should be considered. 'What is the financial strength rating of the issuing insurance company?' Annuity payments are only as secure as the insurance company that backs them. As such, check their ratings with independent agencies like A.M. Best, Moody's, or Standard & Poor's. A strong rating indicates greater financial stability. 'How does this annuity truly fit into my overall retirement plan and financial strategy?' An annuity should never be considered a stand-alone product. Ideally, it should serve a specific, well-defined purpose within your financial plan. Don't trust an advisor if he or she can't explain this clearly. 'What are the specific state laws regarding creditor protection for this annuity in my state of residence?' For asset protection, get written documentation describing the specific level of security offered and any conditions (e.g., qualifying events, payment amounts, limits). Who Might Actually Benefit from an Annuity? Although annuities can be complicated and have potential pitfalls, they can benefit specific individuals. Retirement-age individuals who value guaranteed income. An annuity might be a good choice if your primary goal is to generate a predictable, lifelong income stream to cover essential expenses and reduce anxiety about outliving your money. An annuity might be a good choice if your primary goal is to generate a predictable, lifelong income stream to cover essential expenses and reduce anxiety about outliving your money. Those seeking a degree of market security. With indexed annuities, you can get a sense of security while protecting a portion of your principal from market drops. With indexed annuities, you can get a sense of security while protecting a portion of your principal from market drops. People without a traditional pension. Without a pension, an annuity can provide a baseline of essential income. Without a pension, an annuity can provide a baseline of essential income. Individuals with high net worth who have maxed out their other retirement accounts. It is possible to accumulate wealth through tax-deferred annuities without contributing to 401(k)s, IRAs, or other tax-favored accounts. It is possible to accumulate wealth through tax-deferred annuities without contributing to 401(k)s, IRAs, or other tax-favored accounts. Those living in states with strong creditor protections for annuities. Annuities, particularly those sold in states like Florida or Texas that offer significant, unconditional protection from creditors, might be a compelling asset protection tool for those in those states. Who Should Proceed with Extreme Caution (or Avoid Annuities Altogether)? Not everyone is suited to annuities. It is especially important to be cautious if: You're under 59½. If you withdraw money before this age, you will incur surrender charges and a 10% IRS penalty on top of your regular income tax. If you withdraw money before this age, you will incur surrender charges and a 10% IRS penalty on top of your regular income tax. Despite multiple explanations, you don't fully understand the product. After a thorough explanation, do not proceed with an annuity if the terms, fees, and mechanics remain unclear. Often, complex products are misunderstood, resulting in buyer's remorse. After a thorough explanation, do not proceed with an annuity if the terms, fees, and mechanics remain unclear. Often, complex products are misunderstood, resulting in buyer's remorse. It is sold for a high commission. Be highly skeptical whenever an advisor seems overly enthusiastic about an annuity and doesn't fully disclose their compensation. You should seek out a fee-only fiduciary. Be highly skeptical whenever an advisor seems overly enthusiastic about an annuity and doesn't fully disclose their compensation. You should seek out a fee-only fiduciary. Your retirement income is already sufficient and reliable. Pensions, Social Security, and other diversified investments can provide enough guaranteed income to cover essential expenses without locking up more money in illiquid, high-fee annuities. Pensions, Social Security, and other diversified investments can provide enough guaranteed income to cover essential expenses without locking up more money in illiquid, high-fee annuities. You expect to need access to your money during the short- to medium-term. Because annuities have long surrender periods, they are not suitable for funds you might need for emergencies, large purchases, or unforeseen expenses. Because annuities have long surrender periods, they are not suitable for funds you might need for emergencies, large purchases, or unforeseen expenses. You live in a state with limited or no protection for annuity creditors. Other asset protection strategies might be more effective in states that do not provide robust, unconditional protection for annuities. How to Approach Annuities the Smart Way: 'Trust, But Verify' Do you believe an annuity might fit your retirement plan well? If that's the case, here are some steps you can take with caution and intelligence and ways to protect yourself from annuity scams. Seek a fiduciary advisor. This is paramount. You should work with a financial advisor legally bound to act solely in your best interests. Unlike commission-based fiduciaries, fees-only fiduciaries typically charge hourly or flat fees. This is paramount. You should work with a financial advisor legally bound to act solely in your best interests. Unlike commission-based fiduciaries, fees-only fiduciaries typically charge hourly or flat fees. Comparison shop relentlessly. Never buy the first annuity you're offered. Instead, compare quotes from multiple reputable insurance companies. Take a close look at each company's contracts, fees, riders, and guarantees. Never buy the first annuity you're offered. Instead, compare quotes from multiple reputable insurance companies. Take a close look at each company's contracts, fees, riders, and guarantees. Understand the 'worst-case scenario.' Ask about what will happen if you withdraw money prematurely, die sooner than expected, or the market performs poorly (for variable or indexed annuities). Ask about what will happen if you withdraw money prematurely, die sooner than expected, or the market performs poorly (for variable or indexed annuities). Demand a plain-English summary. You should request a clear, concise overview of the contract, its terms, and all associated fees in a language you can easily understand from the advisor or insurer. It would be a significant red flag if they were unwilling or unable to do so. You should request a clear, concise overview of the contract, its terms, and all associated fees in a language you can easily understand from the advisor or insurer. It would be a significant red flag if they were unwilling or unable to do so. Resist high-pressure sales tactics. Unethical advisors insist on immediate signing, emphasize 'limited-time offers,' or use scare tactics, such as 'rates are about to change!' In reality, a sound financial decision will remain sound tomorrow. So, be patient, do your due diligence, and don't rush anything. Conclusion: Trust, But Verify Annuities can be a valuable retirement planning tool if you understand what you're buying and how it fits into your financial life. Despite the real benefits offered by annuities, they are often complicated, expensive, and tend to be oversold. It's not whether annuities are good or bad — it's whether the annuity you're considering makes sense for you. Whenever you feel something is off, get a second opinion from someone not tied to a commission. Remember that once you sign, it's hard to take back. So, can you trust an annuity? In short, yes. But only after doing your homework, asking the right questions, and confirming that it truly is in your best interest. FAQs What's the main appeal of an annuity for retirees? Guaranteed income is the biggest draw, especially for life. Many retirees worry about outliving their savings, especially if they do not have a traditional pension. No matter how long you live or how the market performs, annuities can provide a predictable, consistent stream of income that can cover your essential living expenses. How do I know if an annuity salesperson is trustworthy? You should be cautious of anyone who; You are urged to 'buy now' before rates change or are subjected to high-pressure sales tactics. Does not mention fees, risks, or surrender charges, but only emphasizes the benefits. Suggests putting a substantial portion of your savings into an annuity. Doesn't have a clear explanation of the product in simple terms. They are not fully transparent about their compensation (commissions). It is always a good idea to seek the advice of a fiduciary advisor. As a result, they are legally obligated to act in your best interests, not just those suitable for you. Unlike commission-based financial planners, fee-only planners are fiduciaries. Is there a way for me to verify the financial strength of the insurance company offering an annuity? You will receive them if the insurer can afford your payments. So, review ratings from the following independent agencies; A.M. Best Moody's Standard & Poor's (S&P) Fitch Ratings A high rating (e.g., A or better) indicates a healthy financial position. How can I buy an annuity safely and smartly? Get the help of a fiduciary advisor. This step is necessary to ensure the best advice possible. This step is necessary to ensure the best advice possible. Shop around. Consult multiple, highly-rated insurance companies. Consult multiple, highly-rated insurance companies. Be sure to read the fine print. Read it thoroughly, not just skim it. Understanding the entire contract, including all terms, disclosures, and conditions, is essential. Read it thoroughly, not just skim it. Understanding the entire contract, including all terms, disclosures, and conditions, is essential. Be aware of the worst-case scenario. Understand what happens if you need money early, if market conditions or your life circumstances change. Understand what happens if you need money early, if market conditions or your life circumstances change. Don't rush. Don't feel pressured to buy. It is okay to wait a day or two before making a sound financial decision. Walk away if someone insists on an immediate sale. Don't feel pressured to buy. It is okay to wait a day or two before making a sound financial decision. Walk away if someone insists on an immediate sale. Get a second opinion. In case of doubt, consult another independent, fee-only financial planner for an unbiased review. Image Credit: Andrea Piacquadio; Pexels The post Unpacking Annuities: Can You Really Trust This 'Guaranteed Income' Promise in Retirement? appeared first on Due.
Entrepreneur
2 days ago
- Business
- Entrepreneur
The 14 Best Retirement Podcasts and Blogs to Follow
Having a retirement plan is more than just numbers. It's about having a vision, being confident, and staying current. No matter how far away you are from retirement or how... This story originally appeared on Due Having a retirement plan is more than just numbers. It's about having a vision, being confident, and staying current. No matter how far away you are from retirement or how close you are to it, the proper guidance can make all the difference. Thankfully, there's no shortage of insightful voices out there. Whether it's real retirees sharing their stories or financial experts offering advice, podcasts and blogs dedicated to retirement can provide inspiration, guidance, and advice. To help you cut through the noise, we've compiled a list of the best retirement blogs and podcasts. These resources will keep you informed and motivated, whether financial strategies, lifestyle changes, or personal stories. Why Tune Into Retirement Podcasts and Blogs? Saving money isn't the only important part of retirement — it's also about planning for a meaningful next chapter. With so much information available, it can be hard to know where to start. This is where blogs and podcasts shine. Often for free, they offer digestible, accessible insights. With blogs, you can explore topic depth, bookmark tools, and revisit advice as time goes on. On the other hand, the convenience of podcasts makes it easy to learn while driving, walking, or making coffee. For anyone considering life after work, they provide a balanced diet of education, reflection, and community. Best Retirement Blogs to Read 1. – Retirement and Finance Insights offers a wide range of personal finance content, focusing on retirement planning, annuities, and long-term financial wellness. Readers will gain expert advice and user-friendly explanations to help them plan for retirement. Why it's worth your time: The blog features articles from industry experts and financial planners and provides easy-to-understand explanations of complex topics like lifetime income, retirement income strategies, and annuities. The blog features articles from industry experts and financial planners and provides easy-to-understand explanations of complex topics like lifetime income, retirement income strategies, and annuities. Great for: Readers seeking clear, concise guidance on creating a sustainable retirement income and understanding annuities. This blog, founded by early retiree Darrow Kirkpatrick and now authored by Chris Mamula and David Champion, is a goldmine of retirement planning wisdom. It covers investing, withdrawal strategies, healthcare, and other topics. Why it's worth your time: There's no financial jargon here, just thoughtful, well-researched advice based on real-life experience. There's no financial jargon here, just thoughtful, well-researched advice based on real-life experience. Great for: Individuals in their mid-to-late careers and early retirees who want to focus on building their long-term wealth. After retiring at age 55, Fritz Gilbert writes with heart and honesty about life after work. Even though he is no longer blogging full-time, his posts still blend practical advice with personal reflection, making them feel like a conversation with a trusted friend. Why it's worth your time: In addition to checklists, guides, and planning tools, Fritz shares both his successes and challenges from retirement life. In addition to checklists, guides, and planning tools, Fritz shares both his successes and challenges from retirement life. Great for: People looking forward to retiring, who don't know what it's like to be retired. Ben Carlson is a financial analyst who takes a no-nonsense approach to explaining market trends and personal finance concepts. Although he does not exclusively discuss retirement, many of his insights are useful for long-term investors and retirees. Why it's worth your time: Most of Ben's posts take less than five minutes to read, and his advice is grounded in research. Most of Ben's posts take less than five minutes to read, and his advice is grounded in research. Great for: Those interested in staying informed about money and investing without getting lost in technical terminology. As early retirees in their late 30s, Tanja Hester and her partner write candidly about financial independence, privilege, and creating a meaningful post-work life. In her blog, she offers an insightful perspective on how retirement can be redefined beyond finances. Why it's worth your time: With values and intentional living, it is thoughtful, socially conscious, and goes beyond spreadsheets. With values and intentional living, it is thoughtful, socially conscious, and goes beyond spreadsheets. Great for: Those interested in FIRE (Financial Independence, Retire Early), lifestyles based on values, or alternatives to traditional retirement. This blog was written by Wade Pfau, Ph.D., director of retirement research for McLean Asset Management and professor of retirement income at The American College. Through his blog, he offers academically supported insight into annuity pricing, sustainable withdrawal strategies, and the value of financial planning. Why it's worth your time: In some of retirement finance's most complex areas, the content is backed by rigorous research. In some of retirement finance's most complex areas, the content is backed by rigorous research. Great for: An experienced investor or financial professional looking for a data-driven analysis. Some concepts may be a bit advanced for beginners. Retire By 40 was started by Joe Udo to document his early retirement, but has since become a resource for others. Joe provides encouragement and real-life numbers through his posts, from lifestyle tips to financial strategies. Why it's worth your time: With practical advice, personal stories, and frugal living hacks, Joe shares how he retired from engineering at 38. With practical advice, personal stories, and frugal living hacks, Joe shares how he retired from engineering at 38. Great for: Those aiming for early retirement or seeking financial freedom. Best Retirement Podcasts to Follow Known as the 'Retirement Answer Man,' Roger Whitney CFP®, CIMA®, CPWA®, RMA, provides retirement planning information in an effective, conversational manner. His award-winning podcast covers financial and personal topics such as Roth conversions and how to navigate challenging markets in retirement. Why it's worth your time: Roger's approachable and practical approach to financial planning is easy to understand. He also runs an annual series that explores topics in depth, such as creating a retirement plan from scratch. Roger's approachable and practical approach to financial planning is easy to understand. He also runs an annual series that explores topics in depth, such as creating a retirement plan from scratch. Great for: People in their 50s and 60s looking for actionable advice — and friendly advice. This podcast combines financial planning expertise with a touch of humor. Hosts Joe (a financial advisor) and Big Al (a CPA) explain tax strategies, estate planning, and Social Security in plain language. Why it's worth your time: The duo's chemistry and the Q&A format make even dry topics easy to understand. The duo's chemistry and the Q&A format make even dry topics easy to understand. Great for: The DIY investor who wants to know more about taxation and investment strategies. Ben Brandt is a certified financial planner who focuses exclusively on retirement topics. He discusses everything from budgeting in your 60s to optimizing Medicare decisions. His episodes often last under 20 minutes, making them easy to fit into your schedule. Why it's worth your time: With no fluff, it's direct, focused, and expert insight. With no fluff, it's direct, focused, and expert insight. Great for: Those nearing retirement are looking for bite-sized advice. ChooseFI isn't strictly a retirement podcast, but it dives deep into financial independence, an essential component of early retirement. Founded and hosted by Brad Barrett and Jonathan Mendonsa, ChooseFI has become the largest Financial Independence community. This podcast features guest interviews, case studies, and practical hacks for becoming financially free. Why it's worth your time: It's inspirational and community-driven, with tons of actionable content on cutting expenses, increasing income, and rethinking traditional retirement. It's inspirational and community-driven, with tons of actionable content on cutting expenses, increasing income, and rethinking traditional retirement. Great for: Those who want to retire early or escape the 9-to-5 grind. This podcast discusses retirement's emotional and lifestyle aspects, not just the financial aspects. Kathe Kline interviews retirees and experts to explore downsizing, finding purpose, caregiving, and creating fulfilling routines. Why it's worth your time: You'll take a refreshing look at the flip side of retirement, a topic often ignored, making this a worthwhile listen. Great for: People wondering what they'll do in retirement, not just how they'll pay for it. With this award-winning podcast, you'll learn how to lower taxes, invest smarter, and make work optional. In this podcast, Certified Financial Planner Taylor Schulte discusses retirement questions, including when to claim Social Security and how to protect your portfolio during market downturns. Why it's worth your time: Designed for retirees and pre-retirees who want to stay informed and in control, Taylor's content is direct, informative, and highly practical. Designed for retirees and pre-retirees who want to stay informed and in control, Taylor's content is direct, informative, and highly practical. Great for: Anyone who wants to avoid overpaying the IRS and build a tax-efficient, resilient retirement plan. In the podcast, you'll learn how to boost your financial confidence as a retiree or pre-retiree. With the help of financial experts, host Casey Weade explains how to live with intention and make smarter financial decisions. Why it's worth your time: It combines practical financial advice with a values-driven approach to retirement planning. It combines practical financial advice with a values-driven approach to retirement planning. Great for: A person who wants their retirement plan to reflect their finances and life goals. How to Choose the Right Resource for You It is unlikely that every podcast or blog will appeal to everyone. To guide your selections, consider the following questions; Where are you in your retirement journey? Early-career savers may prefer ChooseFI , while those just a few years from retirement may opt for Retirement Starts Today or Can I Retire Yet? Early-career savers may prefer , while those just a few years from retirement may opt for or Do you want numbers, stories, or both? While some resources focus heavily on financial planning, others address mindset, purpose, and lifestyle. While some resources focus heavily on financial planning, others address mindset, purpose, and lifestyle. How do you like to learn? If you enjoy listening to podcasts on your walk or commute, stick with them. A blog might be your best option if you like bookmarking and reading. The best course of action is to mix and match. Different perspectives can give you a well-rounded view of retirement from every angle. Final Thoughts You should view retirement as a new chapter, not a finish line. By learning more, you will feel more confident and prepared. In addition to providing information, podcasts and blogs act as communities, mentors, and sounding boards. They offer relatable, real advice rooted in experience, whether you're crunching numbers or envisioning your ideal life after work. FAQs What are retirement podcasts and blogs? Retirement podcasts. Often released in episodic form, these audio programs offer financial advice, investment strategies, healthcare, lifestyle changes, and emotional aspects of retirement. Most podcasts are available on smartphones and computers through podcast platforms. Often released in episodic form, these audio programs offer financial advice, investment strategies, healthcare, lifestyle changes, and emotional aspects of retirement. Most podcasts are available on smartphones and computers through podcast platforms. Retirement blogs. Websites where individuals and organizations regularly publish articles and posts on retirement topics. In written form, they cover the same topics as podcasts, allowing readers to devour information at their own pace and often provide links to more information. Why should I listen to/read retirement podcasts and blogs? Gain knowledge. They offer valuable insights and information by providing accessible information and insights on complex retirement topics. They offer valuable insights and information by providing accessible information and insights on complex retirement topics. Stay updated. They usually discuss current events and regulatory changes that may affect retirement planning. They usually discuss current events and regulatory changes that may affect retirement planning. Learn from experts. Most of them are hosted by or feature financial advisors, retirement planners, and other professionals. Most of them are hosted by or feature financial advisors, retirement planners, and other professionals. Diverse perspectives. There is content tailored to different stages of retirement planning and different financial situations. There is content tailored to different stages of retirement planning and different financial situations. Convenience. Listening to podcasts on the go is easy, while reading blogs is possible anywhere with an internet connection. Listening to podcasts on the go is easy, while reading blogs is possible anywhere with an internet connection. Motivation and inspiration. You can find podcasts and blogs that share personal stories and tips for a fulfilling retirement. What topics are typically covered? Financial planning. Creating a retirement budget, saving strategies, and investments (stocks, bonds, real estate). Creating a retirement budget, saving strategies, and investments (stocks, bonds, real estate). Retirement income. Various strategies for collecting Social Security benefits, choosing a pension plan, buying an annuity, and withdrawing funds from retirement accounts like a 401(k) or IRA. Various strategies for collecting Social Security benefits, choosing a pension plan, buying an annuity, and withdrawing funds from retirement accounts like a 401(k) or IRA. Healthcare. Information about Medicare and Medicaid, Medigap policies, long-term care planning, and managing healthcare costs in retirement. Information about Medicare and Medicaid, Medigap policies, long-term care planning, and managing healthcare costs in retirement. Taxes. The tax implications of retirement income, tax-efficient withdrawal strategies, and estate planning. The tax implications of retirement income, tax-efficient withdrawal strategies, and estate planning. Lifestyle. Retirement involves traveling, hobbies, volunteering, staying active, and maintaining social connections. Retirement involves traveling, hobbies, volunteering, staying active, and maintaining social connections. Emotional and psychological aspects. Finding a purpose in life without work, maintaining mental health, and adjusting to life without work. Finding a purpose in life without work, maintaining mental health, and adjusting to life without work. Early retirement/financial independence (FIRE). How to achieve financial freedom and retire early. How do I choose which podcasts and blogs to follow? Identify your needs. Have you just started thinking about retirement, are you close to retiring, or are you already retired? You should focus on content that is relevant to your stage. Have you just started thinking about retirement, are you close to retiring, or are you already retired? You should focus on content that is relevant to your stage. Consider your interests. What are your primary interests regarding finances, lifestyle, or both? What are your primary interests regarding finances, lifestyle, or both? Check the hosts' credentials. If you're looking for podcasts and blogs, seek out those hosted by CFP®s, financial advisors, or experts who have demonstrated their expertise. If you're looking for podcasts and blogs, seek out those hosted by CFP®s, financial advisors, or experts who have demonstrated their expertise. Read reviews and listen to/read a few episodes or articles. Consider whether the style and delivery of the content resonate with you. Consider whether the style and delivery of the content resonate with you. Look for actionable advice. It is important to find resources that provide practical tips and strategies you can put into practice. It is important to find resources that provide practical tips and strategies you can put into practice. Be wary of overly promotional content. Some podcasts or blogs may primarily promote specific financial products and services. Are there any potential downsides to following retirement podcasts and blogs? Information overload. It is easy to get overwhelmed by the sheer volume of content available. It is easy to get overwhelmed by the sheer volume of content available. Conflicting advice. Experts may have differing opinions. Experts may have differing opinions. Outdated information. Ensure the content is current, as retirement rules and regulations are subject to change. Ensure the content is current, as retirement rules and regulations are subject to change. Bias. The recommendations of some content creators may be influenced by their affiliations or biases. The recommendations of some content creators may be influenced by their affiliations or biases. Not personalized. It is possible that generic advice is not appropriate for your specific situation. Image Credit: Magda Ehlers; Pexels The post The 14 Best Retirement Podcasts and Blogs to Follow appeared first on Due.
Entrepreneur
6 days ago
- Business
- Entrepreneur
Not Your Parents' Retirement: Smart Strategies for a New Era
In the past, retirement followed a predictable script: work 40 years, collect a pension, claim Social Security, and coast through your golden years. However, that formula is now considered outdated.... This story originally appeared on Due In the past, retirement followed a predictable script: work 40 years, collect a pension, claim Social Security, and coast through your golden years. However, that formula is now considered outdated. In the modern world, professionals face a vastly different landscape, particularly entrepreneurs, freelancers, and self-employed people. With longer lifespans, volatile markets, shifting job models, and disappearing pensions, retirement is a thing of the past. The good news? The retirement plan your parents had is not the only option you have. Using the right strategies can create a more flexible, individualized, and resilient retirement plan. To prepare for the future, you must think differently — and smarter. 1. Rethinking retirement age: The evolving end game. Despite its traditional status, the retirement age is rapidly losing relevance. We are living longer, living healthier lifestyles, and often working well into our 70s, sometimes out of necessity, sometimes by choice. Entrepreneurs, in particular, often blur the distinction between 'working' and 'retired,' often reducing their involvement gradually rather than completely withdrawing. Strategy: Rather than rigidly defining when all work must cease, consider a more fluid transition. Consider ways to gradually reduce your working hours, pivot into consulting roles, or create passive income streams that supplement your income. In addition to easing financial strain, this phased approach retains a sense of purpose and structure in your life, both essential ingredients for sustained mental and emotional health as you age. 2. Building income instead of saving for a nest egg. Our parents often relied on pensions, Social Security benefits, and accumulated savings for their retirement. However, due to today's economic climate, pensions that were once commonplace are becoming rare, and the long-term stability of Social Security continues to be debated. Although substantial savings are undoubtedly beneficial, they don't guarantee a steady and predictable income. As a result, a modern approach to income planning is required, strategically ensuring that a reliable and consistent flow of income comes in each month to cover living expenses. Strategy: Identify and analyze income-generating assets and strategies. This could include buying annuities that guarantee income, building a portfolio of dividend-paying stocks, buying rental properties that generate passive income, or even monetizing intellectual property to earn royalties. Ideally, your assets should be structured in a way that can replace your regular paycheck once you transition out of active employment. 3. Annuities as a tool for income stability. Often, annuities have a negative connotation because they are marketed aggressively or viewed in a misunderstanding of their proper application. In retirement, however, they can serve as a powerful tool for income stability, especially for those who lack the security of a traditional pension. Strategy: Invest in annuities like fixed indexed and immediate annuities to ensure you are protected from outliving your savings. In this case, seeking guidance from an unbiased, trusted financial advisor who can properly explain how (and if) annuities fit with your financial situation is crucial. 4. Embracing flexibility and diversification for agility. Historically, our parents' generation has placed most of their retirement savings in a pension fund or relied heavily on employer-sponsored plans. In today's dynamic economic environment, however, true retirement security largely depends on diversification and adaptability. Rigid, one-sided retirement plans can be thrown off by market fluctuations, inflationary pressures, and unforeseen economic shocks. Strategy: Consider a diversified portfolio of financial vehicles. This includes traditional retirement accounts, taxable investment portfolios, real property, and readily accessible cash reserves. To maintain a sense of flexibility within your portfolio, allocate some assets to liquid accounts to meet immediate needs, others to growth-oriented investments to generate long-term appreciation, and the remaining to income-generating investments. An agile and well-diversified overall strategy is better equipped to weather economic storms and adapt to market changes. 5. Don't underestimate the cost of healthcare. Healthcare is one of the most significant and unpredictable variables in modern retirement planning. In contrast to previous generations, today's retirees will likely have to navigate the complexities of Medicare and private insurance on their own. Although Medicare covers most medical expenses, including long-term care, healthcare costs continue to increase annually. Strategy: Be proactive when it comes to planning for future healthcare expenses. If you are eligible, consider a Health Savings Account (HSA). Additionally, consider long-term care insurance if your financial situation is secure and your risk tolerance is high. It is especially important to include realistic estimates of your future medical expenses when you are planning for retirement. If you fail to include this category in your retirement planning, you can seriously undermine your retirement income. 6. Redefining retirement: Keep earning, keep engaging. Today, retirement does not necessarily imply a complete cessation of income-generating activities. An increasing number of retirees are choosing to work part-time, pursue fulfilling careers in their 'second acts,' or turn lifelong hobbies into small businesses that generate income. In addition to relieving potential financial strains, continued engagement creates a sense of purpose and structure crucial for overall health in later life. Strategy: Take advantage of opportunities to capitalize on your existing expertise through freelance consulting, the development of online courses, or public speaking. In addition, consider investing in low-maintenance business models that can provide passive or semi-passive income streams, such as blogging, renting spare rooms, or REITs. By doing this, you can generate revenue without spending much time. 7. Use technology as your financial ally. Our parents likely relied on traditional financial advisors and paper-based bank statements during their lifetime. Today, you can access a wealth of real-time financial data, sophisticated robo-advisors, and AI-driven investment platforms at your fingertips. As such, utilize technological advances to your advantage. Strategy: Use budgeting tools like You Need a Budget (YNAB) and Mint to learn more about your spending habits. Also, use an investment tracking platform like Empower to monitor your portfolio performance. Using a reputable robo-advisor such as Betterment or Wealthfront could simplify and automate your investment management. The key to success is keeping informed and in control of your financial landscape without being overwhelmed. 8. Invest according to your stage, not just your age. Traditional financial advice suggests subtracting your age from 100 and allocating stocks as a percentage of your portfolio for asset allocation. Despite its simplicity, this approach is often inadequate in today's nuanced financial world. It is far more important to evaluate your risk tolerance, retirement income needs, and time frame before you need to access your funds. Strategy: Work with a qualified financial planner who can create a dynamic asset allocation strategy tailored to your specific circumstances — one that will intelligently adjust over time as your financial condition and stage of life changes. Compared to traditional retirees with a shorter time horizon, entrepreneurs who plan to remain active in their businesses may be able to allocate a larger portion of their portfolio to growth-oriented investments. 9. Planning for taxes in retirement: The taxman cometh. It is a common misconception that income taxes will automatically decrease in retirement. However, this isn't always the case. You may find that your taxable income is higher than you expected because of Required Minimum Distributions (RMDs) from tax-advantaged retirement accounts, Social Security taxes, and capital gains taxes on taxable investments. Strategy: During your working years, diversify your investment portfolio by contributing to pre-tax accounts (401ks), Roth accounts (after-tax contributions with tax-free growth and withdrawals), and taxable accounts. If you are in a lower income bracket, consider strategic Roth conversions to reduce your tax burden in retirement. The more you earn or withdraw, the less you get to keep after taxes, so you should always consider taxes when planning your retirement withdrawal strategy. 10. How to define true wealth: Beyond monetary wealth. One of the most significant departures from our parents' traditional retirement mindset is the evolving understanding of success in later life. Many retirees today seek more than a symbolic gold watch and a golf club membership. For them, freedom, purpose, and the ability to live according to their rules are paramount. Strategy: You should design your retirement plan according to your core values and aspirations. Some might do this by traveling the world, while others might book more time with family, volunteer, or mentor the next generation. In financial planning, you're not just trying to accumulate a certain amount of money but to fund the life you desire. Final Thoughts: Embracing the Retirement Revolution The concept of retirement has changed. It's no longer a destination—it's a transition, and as such, the rules have changed. Rather than chasing outdated retirement goals, develop a plan that fits your values, working style, and long-term goals. Whether you are planning your exit strategy, building a business, freelancing, or have worked 25 years, the right retirement plan is proactive, flexible, and deeply personal. Ultimately, you don't need to retire like your parents. The truth is, you probably shouldn't. Instead, you must think smarter and differently. FAQs Why is retirement today different from our parents' generation? Longer life expectancy, a decline in traditional pensions, increased individual investment responsibility (such as 401ks), fluctuating economic conditions, and evolving healthcare costs all contribute to this shift. What are some of the biggest financial challenges facing people planning for retirement today? Key challenges include outliving savings, managing healthcare expenses, navigating market volatility, and dealing with potential inflation. How has the shift from defined benefit (pension) plans to defined contribution (401(k)) plans impacted retirement planning? Due to this shift, individuals are responsible for saving and managing their retirement funds effectively, requiring more financial literacy and proactive planning. What alternative or less traditional approaches to retirement are people exploring today? In retirement, some people consider phased retirement, working part-time, creating passion projects that generate income, and even relocating to lower-cost areas. What's the first step someone should take if they feel overwhelmed by retirement planning? As a first step, people should evaluate their current financial situation, including their income, expenses, debts, and savings. The next step is to set clear retirement goals. Image Credit: Pavel Danilyuk; Pexels The post Not Your Parents' Retirement: Smart Strategies for a New Era appeared first on Due.
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7 days ago
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- Entrepreneur
Rethinking the 4% Rule: Modern Withdrawal Strategies
Retirees, planners, and advisors alike have all used the 4% rule for decades now. Since its discovery in the 1990s, the 4% rule is very straightforward: You withdraw 4% of... This story originally appeared on Due Retirees, planners, and advisors alike have all used the 4% rule for decades now. Since its discovery in the 1990s, the 4% rule is very straightforward: You withdraw 4% of your savings in the initial year of retirement and inflate it proportionately in subsequent years. This has been an age-old strategy for having a strong portfolio and money that lasts for 30 years. Unfortunately, the economic landscape that created this rule has since changed significantly. Increased life expectancies, inflation, rising healthcare costs, and lower projected investment returns pressure old-school retirement planning strategies. This implies that the original rule may no longer apply in modern times, nor could it offer the security it once did. This forces retirees to critically consider if the 4% rule should still be followed, especially in an economy as volatile and uncertain as it is today. Such static withdrawal tactics might need to be updated to adjust to modern landscapes. New research suggests an adapted approach rooted in flexibility, diversified strategies, and dynamic adjustments to build a more resilient and reliable retirement plan to maintain strong, sustainable incomes. What is the 4% Rule? Historical Origins The 4% rate has long been regarded as a safe withdrawal rate, with William Bengen being the first to introduce the concept of the rule in 1994. The financial planner aimed to help people in retirement safeguard their savings and make them last. He conducted an innovative analysis by looking at historical U.S. market data and analyzing 30-year retirement periods. He included rough economic periods, like the stagflation of the 1970s, and the Great Depression in his research. What he concluded was groundbreaking for the time: individuals withdrawing 4% of their retirement fund in the first year and revisiting it annually to cover inflation could make their savings last for at least 30 years. Based on a portfolio split between intermediate-term government bonds and U.S. stocks, Bengen's initial research reflected the typical asset allocation. After that, the rule quickly gained popularity as it granted retirees a simple, actionable framework for balancing their income needs with savings sustainability. However, the rule was created based on assumptions that were tightly linked to the late 20th century's economy, which looks very different from the present day. Underlying Assumptions Built on the realities of the 1990s, the 4% rule reflected outdated key assumptions. For example, market growth expectations were much higher, and bond yields were stronger than today, largely because U.S. equities delivered robust real returns in the late 20th century. Secondly, inflation proved to be much more stable. It was a manageable factor when planning financially long-term, with inflation averaging around 3% annually. Additionally, retirement periods aligned with the average life expectancy at the time, which was estimated to be roughly 30 years. Now, this environment for retirees looks drastically different. Lower expected returns are forecasted for bonds and stocks in the next decade, creating a problematic climate for portfolio growth. Inflation has become more volatile, with dramatic spikes eroding purchasing power in recent years. During all of this, life expectancy has risen, with retirees potentially needing to stretch their assets over 35+ years. The combined realities urgently require questioning the static 4% withdrawal rate and considering whether more adaptive and flexible strategies are now essential to financial retirement security. Why the 4% Rule Is Under Pressure Longer Life Expectancy Increasing life expectancies have been a change that significantly impacts retirement planning. In 2023, the average life expectancy was roughly 78 years in the U.S., according to statistics found by the CDC (Centers for Disease Control and Prevention). People who reached 65 were found to live for another 20 years on average, possibly. Similarly, the Social Security Administration has estimated that one in four 65-year-olds will live past 90. If longer life spans are considered, the average portfolio period changes. Retirees must now potentially plan for 30 to 35 years of income needs, if not longer. Outliving savings becomes a real risk if withdrawal strategies can not adapt to the flexible nature of our economy. Personal health expenses, inflation spikes, and unexpected market downturns can severely affect retirement plans. Planning for a horizon of around 34-40 years may be necessary to ensure financial security during retirement, considering that the original 4% rule assumed 30 years. Lower Expected Investment Returns Longer retirements are not the only factor that presents challenges in today's investment landscape. Return expectations are much lower than in the past. Projections show that in 2024, U.S. stocks will deliver average annual returns of around 4.2% to 6.2% over the next decade, whereas U.S. bonds are predicted to yield between 4.8% and 5.8%. The forecasts are considerably lower than in the 1980s and 1990s, when bond yields often topped 5% and equities delivered double-digit gains frequently. Due to high equity valuations and lower starting bond yields, it will be much less likely in the near future to achieve average returns from the past. These lower returns mean that traditional practices regarding safe withdrawal rates must be reconsidered for retirees depending on portfolio withdrawals. Lower returns and longer retirements combined indicate that strictly sticking to the 4% rule could potentially put retirees at risk for early fund depletion, primarily if a large market downturn occurs in early retirement. This is also known as sequence-of-returns risk. Inflation's Erosion of Purchasing Power One of the most serious and immediate threats to applying the 4% rule today is the reemergence of inflation. Although prices have been relatively stable and consistent for decades, we have recently seen an exponential inflation spike in the U.S. economy starting in 2021. In June 2022, inflation reached a record high of 9.1%, the highest in over 40 years. Severe inflation has moderated slightly since then, although sustained price hikes and their effects remain a worry in sectors relevant to retirees. Healthcare, housing, and long-term care have increased costs faster than the Consumer Price Index (CPI). For example, a private room within a nursing home is estimated to cost over $120,000 per year in 2024, based on a Cost of Care survey by Genworth. While the original 4% withdrawal rule does indeed account for inflation by annually adjusting the rate accordingly, it becomes a problem when inflation surpasses portfolio growth for longer periods. Only increasing withdrawals to equal inflation can easily and quickly deplete retirement savings. Retirees naturally spend a bigger chunk of their income on services in the healthcare sector compared to the general population. This means that such rising essential costs can disproportionately affect them. In order to maintain purchasing power, retirees could possibly have to adjust to dynamic withdrawal plans, consider structures developed to protect against inflation, such as Treasury Inflation-Protected Securities (TIPS), and continually track their own spending flexibility. If the goal is to build a strategy that can withstand today's challenging economic landscape, it becomes crucial to understand the relationship between retirement costs and inflation. Modern Alternatives to the 4% Rule Dynamic Withdrawal Strategies Rather than continuing with a fixed withdrawal plan adjusted according to inflation, dynamic withdrawal strategies provide retirees with a means to alter their spending in direct response to their portfolio performance. The aim is to take advantage of stable markets when the conditions allow it and preserve the portfolio during market strain while sustaining a durable income. One popular and widely known dynamic system is the Guyton-Klinger Guardrails Strategy, engineered by researcher William Klinger and financial advisor Jonathan Guyton. This strategy introduces 'guardrails,' developed to activate annual withdrawal adjustments once the portfolio value rises considerably or dips relative to a baseline goal. For instance, retirees can reduce their withdrawals once the portfolio falls to a certain percentage. On the other hand, if the portfolio grows significantly, users can increase spending limits. Benefits: Longevity protection: It helps protect against early depletion of retirement funds by encouraging reduced spending when the market becomes challenged. This can give investments more recovery time and prolong the lifespan of the assets over multiple decades. It helps protect against early depletion of retirement funds by encouraging reduced spending when the market becomes challenged. This can give investments more recovery time and prolong the lifespan of the assets over multiple decades. Spending flexibility: It allows for higher spending during better markets while avoiding compromising long-term sustainability. It allows for higher spending during better markets while avoiding compromising long-term sustainability. Behavioral support: A system based on rules can help retirees make better decisions during market turmoil. Guardrails offer stability with fixed guidelines on how and when to adjust spending. Drawbacks: Income variability: Fluctuations in income could happen frequently, and retirees must accept that this will be a factor. This is an unfortunate downside to dynamic withdrawal strategies. It might be challenging for those with lifestyle commitments or rigid expenses. Fluctuations in income could happen frequently, and retirees must accept that this will be a factor. This is an unfortunate downside to dynamic withdrawal strategies. It might be challenging for those with lifestyle commitments or rigid expenses. Complexity: Implementing this strategy requires constant monitoring of portfolio status and frequent recalculations of withdrawal amounts. This added layer of complexity may be overwhelming to retirees who prefer a simpler approach. Implementing this strategy requires constant monitoring of portfolio status and frequent recalculations of withdrawal amounts. This added layer of complexity may be overwhelming to retirees who prefer a simpler approach. Communication challenges: Individuals in a partnership require open communication to agree on flexible spending habits and a shared commitment to their financial goals, which can introduce potential strain. Lower Initial Withdrawal Rates Another recommended adaptation is simply starting with a lower initial withdrawal rate at the beginning of retirement. Research recommends starting retirement with a 3.7% withdrawal rate, which would suit the modern market environment more appropriately. Starting with a lower rate sets retirees up for a better chance of success in offering increased flexibility in the years ahead, based on inflation and actual investment returns. For example, a retiree following this strategy, beginning their retirement with $1 million in savings, would withdraw $33,000 in their first year instead of $40,000 under the original 4% rule. This greatly improves the portfolio's ability to survive in tense market conditions in the earlier years when sequence-of-returns risk is most critical, although it may feel like quite a considerable reduction at first. By lowering that first withdrawal rate, retirees are building a stronger barrier against market and portfolio volatility, providing them with the resilience to perhaps increase spending at a later stage should returns exceed expectations. This is a rather conservative approach but offers pragmatic adjustments that prioritize financial sustainability and recognize the instabilities of the modern investing landscape. Bucket Strategies for Retirement Planning The bucket strategy offers a practical structure for improved management of retirement withdrawals. It allows the separation of assets into various 'buckets', based on the timeframe for when the money will be needed. Retirees typically segment their assets into three different buckets: Immediate needs (0-3 years) Assets in the first bucket are generally held in low-volatility and highly liquid modes, such as money market funds, cash, or short-term government bonds. The main goal is preservation rather than growth, which ensures savings are available whenever needed, regardless of the market conditions. Intermediate needs (3-10 years) Assets in the second bucket are allocated to cover anticipated spending, typically in the third to tenth year of retirement. They are invested in a variety of bond funds, income-generating investments, and intermediate-term bonds. Although slightly more vulnerable to market change, this bucket prioritizes growth and stability. Long-term growth (10+ years) This bucket's purpose is to support longer-term growth to facilitate a retiree's income stretching over decades. This part of the portfolio is often invested in real estate investment trusts (REITs), stock funds, and general growth-based assets. Since this bucket won't be touched for years, retirees can endure market changes while striving for higher returns, which will help them withstand inflation. The bucket strategy certainly reduces sequence-of-returns risk. Should retirees face a stock market decline, they can withdraw funds from the first two buckets instead of selling equities. Alternatively, markets can top up shorter-term buckets with funds acquired from the third bucket whenever markets gain strength. This approach offers retirees both a practical and psychological advantage. It alleviates anxiety by ensuring that near-term needs are met and secured, and helping them avoid forced selling during market crashes. Retirees can adjust how each bucket's assets are taken from and refilled based on economic conditions; thus, the bucket strategy also naturally supports a dynamic withdrawal system. The Risks of Overcorrecting It is important to remember that being too conservative also has risks, while retirees should remain careful when it comes to withdrawal rates in an unstable economic environment. A fine balance needs to be struck, as some may overcorrect by significantly reducing their spending, which may lead to an accidental decrease in quality of life during years that were meticulously saved and planned for. Underspending is a clear hidden cost here, which takes the enjoyment out of retirement and can possibly lead to feelings of remorse due to not living comfortably and missed opportunities like pursuing hobbies or traveling. Fear-Driven Underspending Decision-making driven by fear may push people to hoard their assets, even though they have more than enough resources to sustain higher spending. Research into behavioral finance gives us more insight into why this happens. Loss aversion is a concept that describes situations in which people can feel losses and their pain more intensely than the satisfaction of gaining. This idea forms part of the Prospect Theory, developed by Amos Tversky and Daniel Kahneman. This can manifest within retirement through the overwhelming fear of running out of money, which may cause retirees to rather underspend, even if they likely carefully planned for their retirement savings to be sustainable. Sometimes, it can be a psychological factor for people who have had saving mentalities throughout their whole working lives, retirement possibly being the very reason, thus making it difficult for them to transition into spending that money. Finding a Balance Finding a lasting balance is key to avoiding the risks of under- and overspending. By opting for a more flexible withdrawal strategy, retirees can remain financially secure while also enjoying their savings and the results of their hard work. To achieve this, a flexible withdrawal strategy that specifically adjusts based on portfolio status, changing lifestyle needs, and life expectancy updates would be optimal. Retirees can reap the benefits from setting spending guardrails, building contingency plans, and frequently reassessing their financial situation, rather than sticking to rigid, fixed withdrawal rates. Being open to using a trusted financial advisor can also offer them valuable suggestions and guidance that might boost their confidence in making more intelligent decisions. Retirement should ultimately be about achieving a balance between maintaining financial security and a good quality of life. A retirement plan that prioritizes fine planning and spending based on relevant needs can help retirees protect their wealth and well-being during these years. Actionable Tips to Future-Proof Your Retirement Planning for retirement happens continually. It's a process that needs constant attention and adjustments through the evolution of market conditions, economic realities, and personal circumstances. Consider the following actionable steps for retirees to strengthen their portfolio longevity and resilience: Adjust your withdrawal strategy every few years: Scheduling periodic reassessments of withdrawal rates would be much more pragmatic than relying on a set, rigid model. Adjusting your withdrawal strategy based on portfolio performance and inflation changes can set you up for success and avoid unnecessary underspending or fund depletion. Portfolio testing against various market scenarios: To test how sustainable your current strategy is, running simulations may reveal the answer. Retirees can use a range of possible market outcomes, like periods of high inflation, recessions, and longer bear markets. Many financial advisors offer simulations like Monte Carlo for retirees to grasp their risk exposures well. Incorporate flexibility into your retirement budget: Categorizing expenses achieves financial flexibility by separating essential, fixed expenses (think: healthcare, insurance, and housing) from more negotiable spending like travel and entertainment expenses. Thus, expenses can be adjusted according to the current market performance without compromising the essential needs of retirees. Diversify across assets: Maintaining a varied portfolio that includes alternative investments, bonds, stocks, and cash equivalents is a great tool for cushioning against market shocks. Allocating your assets should simultaneously reflect long-term growth and shorter-term income stability. Consult financial advisors for personalized guidance: By providing objective advice customized for your specific needs, circumstances, and risk tolerance, you can utilize the services of an independent fiduciary advisor, which can add considerable value to your portfolio. They can also assist with managing behavioral biases to guarantee that your withdrawal strategies align with economic changes. Incorporating these proactive steps in a retirement withdrawals approach can help preserve all assets, a sustainable income, and a retiree's confidence during more turbulent markets. Flexibility, Not Rigid Rules While it would not be entirely fair to completely disregard the original 4% withdrawal rate rule when it comes to retirement planning, it does remain a rather rigid rule that prohibits standard application for most retirees. As the economic landscape on which the original rule was based has changed remarkably, so must the accompanying strategies used to support a sustainable retirement. Modern retirees must use flexibility, adaptability, and consistent portfolio monitoring as a baseline when planning for financial retirement. Navigating the volatile nature of our current economy, including inflation and longevity risk, can be tricky, but it can be significantly easier with dynamic withdrawal strategies, diversified portfolios, tested budgets, and realistic starting withdrawal rates. The creation of retirement plans capable of adjusting to changing conditions, whether personal or economic, can help retirees preserve their purchasing power, keep their quality of life, and preserve their assets across many years and decades. New research, improved accessibility to professional guidance, and new tools prove that today's retirees are much better equipped than in the past. If these resources are applied effectively, financial security during retirement will be more than successful, enabling retirees to survive and truly thrive. Featured Image Credit: Photo by Optical Chemist; Pexels The post Rethinking the 4% Rule: Modern Withdrawal Strategies appeared first on Due.
