Understanding Retirement Savings for a Secure Future

If you’re stressed about your retirement savings, you’ve likely been misled. Let’s explore the exact method I use to help my clients secure the retirement of their dreams while avoiding common pitfalls.

Accumulating vs. Decumulating Wealth

Many people unknowingly fall into a common trap—the transition from accumulating wealth to decumulating wealth is entirely different. Accumulators know how to save and invest well, but decumulation goes against every instinct. This phase involves spending the retirement savings you’ve built, which can be challenging for those who have been focused on saving.

The Flaws of Common Retirement Rules

Common rules of thumb, such as the 4% rule, suggest that you can safely withdraw 4% of your retirement savings each year. However, this static approach can be risky. For instance, if you retired in 1966 and followed the 4% rule, you would have run out of money. Conversely, retiring in 1986 could have resulted in your portfolio growing significantly.

A Dynamic, Risk-Based Approach

The key to a successful retirement strategy is a dynamic, risk-based guardrails approach. This method allows you to adjust your spending based on portfolio performance, longevity, and changes in expenses. It ensures you won’t overspend or underspend, providing a balanced and realistic retirement plan.

Real-Life Example: Ken and Susan

Ken and Susan, with $2.3 million in retirement savings, sought confidence in their retirement plan. By incorporating all risks, including the timing of Social Security and mortgage payoff, we created a plan showing their spending capacity and necessary adjustments over time. This approach gave them the confidence to retire, knowing their plan was adaptable to future uncertainties.

The Importance of a Comprehensive Plan

Retirement planning is not about a single number. It’s about testing all financial variables working together to provide the best retirement possible. A risk-based guardrails approach helps balance the realities of retirement spending, ensuring you enjoy the retirement savings you’ve accumulated without the fear of running out of money.

Conclusion

By using a comprehensive, dynamic approach to retirement planning, you can confidently transition from accumulating to decumulating wealth. This method ensures your financial future is secure, adaptable, and tailored to your unique needs and goals. Avoid the pitfalls of outdated rules of thumb and embrace a strategy that provides true peace of mind.

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