By Antonio Porretta
As you enter retirement, you step into uncharted territory, leaving behind the predictability of a regular paycheck and structured routine. It’s a shift from the familiar to the unknown, where managing limited resources and enjoying newfound leisure time becomes the norm. It’s a departure from the life you’ve known, but also an opportunity to see the fruits of your labor.
In our experience, many retirees experience the same financial planning challenges in the first decade of retirement. Curious to learn more? Keep reading for insights into this pivotal period.
1. 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 Roth IRAs and Roth 401(k)s are taxed beforehand, so the money is withdrawn tax-free.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.
Create a withdrawal strategy with the help of an experienced 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 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.
3. Ignoring Inflation
Another major challenge we see new retirees face is the desire to play it safe in the stock market. This may do 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 one of the biggest threats to your nest egg. Sit down with a qualified professional who can help you strike a balance between preserving wealth and growth.
4. 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 better position your portfolio with a goal of outpacing inflation (#3 on our list) while having a safety net to fall back on.
5. Navigating Retirement Solo
After years of careful planning and safeguarding your wealth, don’t leave your retirement finances to chance. Instead of navigating this journey on your own, consider the value of partnering with a qualified financial advisor to avoid these common financial mistakes.
At Blackbridge Financial, our goal is to help you strategize and feel confident that your retirement fund remains sustainable and enduring, providing you with confidence in investing and stability for the years ahead. To schedule a free consultation, email me at antonio.porretta@lpl.com or call 704.960.9646.
About Antonio
Antonio Porretta is an independent wealth manager at Blackbridge Financial with over 24 years of experience. He specializes in helping people create, distribute, and preserve their wealth. Antonio received an executive MBA from Saunders College of Business at Rochester Institute of Technology in 2007 and also holds the Accredited Asset Management Specialist℠, AAMS® designation. Originally from Rochester, NY, Antonio has been a resident of Harrisburg, NC, since 2007. Outside of work, he enjoys playing soccer and tennis, coaching, and spending time with his wife, Laura, and their children, Cristiano, Victoria, and Matteo. To learn more about Antonio and how he can make a difference in your financial life, visit www.blackbridgefinancial.com.
Check the background of investment professionals associated with this site on FINRA’s BrokerCheck. Securities are offered through LPL Financial, Member FINRA/SIPC.
Blackbridge Financial is an other business name of Independent Advisor Alliance, LLC. All investment advice is offered through Independent Advisor Alliance, LLC, a registered investment adviser. Independent Advisor Alliance, LLC is a separate entity from LPL Financial.
This material was prepared for Antonio Porretta’s use.