Three tips for extending the life of your retirement savings

TRANSCRIPT

Amy Chain: This is a question that came in before tonight’s webcast from Caroline from St. John, Indiana. Caroline, thank you for your question. She says, “What are the key principles for extending the life of your retirement savings?”

Colleen Jaconetti: Great question. We actually have three principles for extending the life of the retirement savings. The first one is develop a prudent spending rule. So try to balance current spending with the need for future spending or requests. The second would be implement a tax-efficient withdrawal plan, so basically minimize the amount of taxes you pay each time you take money out of the portfolio, and that will actually help you extend the portfolio’s life or be able to spend more. And the third principle would be to actually have a broadly diversified portfolio that you can stick to in the best and worst of times. I think for us the common thread is low cost. Mostly we’re passionate about low-cost, high-value investing. Indexing, in a sense, is the purest form of that in that you’re just trying to track your benchmark. You’re going to track your benchmark more closely the lower your expense ratio is.

Amy Chain: I think we’re going to have time to get into lots more about this tonight. But talk to me, of those three, where would somebody start?

Colleen Jaconetti: I guess start with what are your income and expenses, right? So really figure out how much income you’re going to have each month, what do you need to spend it on, and where is the gap? Right, because, that will help you inform what your spending strategy should be, how the rest of your asset allocation should be, and then finally what are the taxes you’re going to have to pay on the withdrawals you’re going to need to make.

Amy Chain: Kahlilah, do you get this question often from clients?

Kahlilah Dowe: Yes. So that’s one of the things, that’s the main thing, I would say, that clients look at coming into retirement. So how do I decide what I need to spend? Or, I should say, how do I decide how much I can spend from the portfolio, and how do I turn this portfolio into a paycheck? So that’s really where we start, and like Colleen said, it’s, okay, tell me how much do you think you need to spend? And oftentimes it’s kind of a trial. So they don’t always know what they need to spend. The first thing that I look at is what does this portfolio need to do for you? So what is the goal? And, of course, it’s that most of the time it’s that they need to make sure that the portfolio can provide them with the source of income. But oftentimes it’s a step further. It’s “I want to make sure that I can pass on as much as I can to my children” or “I need to make sure that I can cover long-term care expenses.” Those are some of the things that impact how much you can spend from the portfolio up front. So I would say for an investor who is looking to pass on as much as they can to heirs or who may be self-insuring for long-term care, that may be an argument for spending less up front so that they can cover some of those expenses or pass on more toward the end. The other thing that I look at is the time horizon. So for the clients that I work with who are retiring let’s say early on, then they may need to spend less up front so that the portfolio can last them for, let’s say, more than 30 years. Maybe it’s 35 or 40 years. And then the other thing that I look at is their risk tolerance, so how comfortable they are with the ups and downs in the market. And some of my clients will say, you know, “I’m going into retirement. I want to focus more on preserving what I already have” as opposed to, let’s say, growing the portfolio significantly beyond where it is, and, of course, you still have to get some growth, even going into retirement. But for those investors, they may have to spend a little less if they want to be more conservative on the onset.

Amy Chain: What I am hearing both of you say is that the considerations about how to spend your retirement portfolio start with the same thing that, figuring out how to save for your retirement portfolio. What are your needs? When are your needs going to come, and for how long will you have those needs? Is that—?

Kahlilah Dowe: Exactly.


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