As you stand on the precipice of retirement or consider your current retirement position, it's time to take a data-lit journey through the landscape that awaits.
The Rising Tide of Inflation
Imagine, if you will, finding a $100 bill from 30 years ago. That same bill would need to be approximately $210 today just to have the same purchasing power. Now, if you're planning to lean heavily on your investment portfolio during retirement, you're going to want investments that outpace this silent wealth eroder. Growth-oriented investments, like stocks or stock-based funds, can provide returns that at least match, if not surpass, inflation rates.
Figure 1
Guidance: Having a diversified mix of assets, especially those poised for growth, is crucial. This blend can potentially help your portfolio's returns to either meet or beat inflation.
Crafting Your Golden Key: Withdrawal Strategy
Imagine a vast treasure chest, where the art isn't just in accumulating the wealth but in how and when you take it out. Taxes can range from 6% to a daunting 37% based on how you access these funds. And your withdrawal rate? It should take into account your retirement age, portfolio size, other income sources like Social Security, and potential tax implications.
Figure 2
Suggestion: Consult a financial professional. With their expertise, you can sculpt a withdrawal strategy tailored to your unique needs, ensuring that your treasure serves you well throughout retirement.
The Winds of Market Volatility
Picture the financial markets as vast oceans. Their waves, sometimes turbulent and at other times calm, are a natural part of the journey. Such fluctuations should be expected, and with the right planning, can be turned to your advantage. Remember, the S&P 500 sees frequent pullbacks but has an impressive long-term annual return.
Figure 3
Navigational Point: Embrace the waves. Use market fluctuations as opportunities to rebalance, tax harvest, and strategize for what lies ahead.
The Oasis of Healthcare
Crossing the dunes of retirement, healthcare looms large on the horizon. It's startling to think that for many, health expenses can become the most substantial outlay in some retirement years. Moreover, these costs often inflate at a rate higher than general inflation, which can feel particularly unjust.
Oasis Strategy: Plan for these expenses meticulously. Their impact can influence other areas, like Medicare premiums. By integrating these considerations into your overall plan, you can prevent health expenses from turning your oasis into a mirage.
Preparing for Life's Detours
Every seasoned traveler is ready for the unexpected. With 40% of Americans potentially struggling with a sudden $400 expense [5], it's evident that retirement might have its surprises. By maintaining an emergency fund equivalent to a year's worth of living costs in a liquid form, you're in a good position to weather unforeseen financial storms.
Trail Advice: Dedicate an account solely for emergencies. Keep it separate from day-to-day funds to resist the pull of unnecessary spending.
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As the chapters of your retirement story unfold, remember that each individual's tale is unique. Yet, the wisdom of experience, backed by data, lights the path.
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Figure 1: BLS, Consumer Price Index (all urban consumers, seasonally adjusted)
Figure 2: JP Morgan Asset Management
Figure 3: Source: FactSet, Standard & Poor’s, J.P. Morgan Asset Management.
Returns are based on price index only and do not include dividends. Intra-year drops refers to the largest market drops from a peak to a trough during the year. For illustrative purposes only. Returns shown are calendar year returns from 1980 to 2022, over which time period the average annual return was 8.7%.
5: https://www.federalreserve.gov/publications/2022-economic-well-being-of-us-households-in-2021-dealing-with-unexpected-expenses.htm
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
Investing includes risks, including fluctuating prices and loss of principal. No strategy assures success or protects against loss. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.
Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.