Reaching Retirement: Now What?

You’ve worked hard your whole life anticipating the day you could finally retire. Congratulations — that day has arrived! But with it comes the realization that you’ll need to carefully manage your assets to give them lasting potential.

Review your portfolio regularly

Traditional wisdom holds that retirees should value the safety of their principal above all else. For this reason, you may assume your investment portfolio should be shifted to all fixed-income investments, such as bonds and money market accounts. The problem with this approach is that you’ll effectively lose purchasing power if the return on your investments doesn’t keep up with inflation.

While generally it makes sense for your portfolio to become progressively more conservative as you grow older, it may be wise to consider maintaining at least a portion of your portfolio in growth investments.

Spend wisely

Don’t assume that you’ll be able to live on the earnings generated by your investment portfolio and retirement accounts for the rest of your life. At some point, you’ll probably have to start drawing on the principal. But you’ll want to be careful not to spend too much too soon. This can be a great temptation, particularly early in retirement.

A good guideline is to make sure your annual withdrawal rate isn’t greater than 4% to 6% of your portfolio. (The appropriate percentage for you will depend on a number of factors, including the length of your payout period and your portfolio’s asset allocation.) Remember that if you whittle away your principal too quickly, you may not be able to earn enough on the remaining principal to carry you through the later years.

Understand your retirement plan distribution options

Most traditional pension plans pay benefits in the form of an annuity. If you’re married, you generally must choose between a higher retirement benefit paid over your lifetime, or a smaller benefit that continues to your spouse after your death. We can help you with this difficult, but important decision.

Historically, other employer retirement plans, such as 401(k)s, typically haven’t offered annuities; however, this may change as a result of legislation passed in 2019 that makes it easier for employers to offer such products. If your plan offers an annuity as a distribution option, you may want to consider how it might fit in your long-term plan.

If you’re retiring, you might consider whether it makes sense to roll your employer retirement account into a traditional IRA, which typically has flexible withdrawal options. In addition, flexible beneficiary designations may allow for the continued tax-deferred investing of inherited IRA assets. If you decide to work for another employer, you might also be able to transfer assets you’ve accumulated to your new employer’s plan. Not all employer plans accept rollovers so you will need to talk to the plan administrator to find out if this option is available to you.

Neither of the rollover options are taxable, events and they allow you to consolidate your accounts and keep a larger sum of money working for you. When considering a rollover, to either an IRA or to another employer’s retirement plan, you should carefully consider the investment options, fees and expenses, services, ability to make penalty-free withdrawals, and distribution requirements associated with each option.

If permitted, another option you may have available is to leave the money in your former employer’s plan. This can be advantageous if you like the investments offered and there may not be a fee for leaving the funds.

Finally, you may also choose to take a lump-sum distribution from your work-based retirement plan; however, this could incur a substantial tax obligation and a possible 10% penalty on the tax-deferred portion of the amount if you are under age 59½, unless an exception applies.

Plan for required distributions

Keep in mind that you must generally begin taking required minimum distributions (RMDs) from employer retirement plans and traditional IRAs after you reach age either 73 (for those who reach age 72 after December 31, 2022) or 75 (for those that were born in 1960 or after), whether you need them or not.¹

If you own a Roth IRA, you aren’t required to take any distributions during your lifetime. Your funds can continue to grow tax deferred, and qualified distributions will be tax free.² Because of these unique tax benefits, it may make sense to withdraw funds from a Roth IRA last.

Know your Social Security options

You’ll need to decide when to start receiving your Social Security retirement benefits. At normal retirement age (which varies from 66 to 67, depending on the year you were born), you can receive your full Social Security retirement benefit. You can elect to receive your Social Security retirement benefit as early as age 62, but if you begin receiving your benefit before your normal retirement age, your benefit will be reduced. Conversely, if you delay taking Social Security, you can increase your benefit until you reach age 70 when your benefit will be maximized.

By planning carefully, investing wisely, and spending thoughtfully, you can increase the likelihood that your retirement will be a financially comfortable one.

¹If you are still employed and own no more than 5% of your company, you may be able to delay RMDs from your current employer’s plan until after you actually retire. You will have to take RMDs from IRAs and plans from former employers.

²To qualify for tax-free and penalty-free withdrawal of earnings, a Roth IRA must meet a five-year holding requirement and the distribution must take place after age 59½, with certain exceptions.

This information, developed by an independent third party, has been obtained from sources considered to be reliable, but Raymond James Financial Services, Inc. does not guarantee that the foregoing material is accurate or complete. This information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. Investments mentioned may not be suitable for all investors. The material is general in nature. Past performance may not be indicative of future results. Raymond James Financial Services, Inc. does not provide advice on tax, legal or mortgage issues. These matters should be discussed with the appropriate professional.

Content Prepared by Broadridge Investor Communication Solutions, Inc.