#1 – Understand what your retirement needs may be.

This first step is to think about and write down what your ideal life after your earning years looks like. Without an idea of what your retirement goals are, it can be difficult to know if you have enough assets to achieve them. That’s why it’s important to take time to understand and articulate your vision for retirement. Are you hoping to travel the world? Spend time with family and friends? Take up a new hobby? Support charitable causes? Purchase a second home?

Talk with your spouse about your shared and individual retirement goals, and determine how much you might need each month to live comfortably. This figure can help you determine if your current savings is enough to fund your ideal retirement lifestyle.

#2 – Consider what expenses may increase in retirement. 

A general rule of thumb is to plan on spending between 70% and 80% of your current income while living in retirement. While it’s true some expenses decrease once you leave the workforce, others actually increase. For example, healthcare is a major expense for most retirees, and healthcare expenses typically increase as you age and encounter more medical issues.

Similarly, you may find that you spend more on hobbies and traveling now that you have more time to do the things you enjoy. That’s why it’s wise to consider both the expenses that will decrease in retirement (e.g., commuting to work) and the expenses that are likely to increase (e.g., healthcare).

#3 – Develop a financial plan. 

The best way to help ensure your savings will last throughout retirement is by having a financial plan in place to guide your saving, investing, and retirement income strategies. A comprehensive financial plan puts you in control of all aspects of your financial life and can help you identify specific actions to address the challenges you face. More than anything, a financial plan can help you articulate and remain accountable to your goals, as it clearly highlights where you stand today versus where you hope to be in the future. Questions about your financial plan or how to get started? Reach out to [email protected]

#4 – Establish a long-term investment allocation. 

Once you’ve created a strong financial plan, you need to create an investment plan that gives you the best shot of making your plan come to life. A common mistake made by many retirees is maintaining an asset allocation that’s too conservative. While it’s important to protect your retirement fund, it’s also important to continue growing your assets for the future. After all, you could end up living in retirement for 20 to 30 years — or even longer. You’ll need your assets to continue growing in order to keep up with both inflation and your daily living expenses.

In order to continue growing your assets at an appropriate rate, it’s important to maintain a diversified investment portfolio. While stocks are typically more volatile than bonds, they provide the potential for greater growth within your portfolio, which is vital in helping you keep up with inflation. On the flip side, an allocation to bonds and other conservative investments can help protect your assets during periods of market volatility.

The financial markets are unpredictable. In order to take advantage of this fact and extend the longevity of your portfolio, it’s critical to withdraw from stocks when markets are up and from bonds when markets are down. We typically recommend our clients have five to seven years of expenses invested in safer assets, such as bonds. This way, when the markets are down, you have the ability to withdraw from less-volatile investments without realizing a loss in your stock portfolio. Once the markets have recovered, we can sell some stocks at a profit to replenish your bond portfolio in preparation for the next bear market.

This approach allows us to continue growing your assets for the long term while also protecting the money needed to cover your daily living expenses.

#5 – Model a systematic withdrawal plan. 

Once you have a solid financial plan and an investment allocation that supports it, the final step is developing a systematic withdrawal plan for your assets. This is simply a scheduled withdrawal from your invested assets based on a reasonable withdrawal rate. Retirees in their mid-sixties typically begin by withdrawing no more than 4% of their retirement savings their first year and adjusting that dollar amount for inflation each year thereafter to maintain their spending power. Of course, the exact withdrawal percentage should depend on how much you have, your lifestyle goals, your life expectancy, your desire for passing on a legacy, etc.

Your wealth manager can help you model a systematic withdrawal plan that makes sense given your personal financial situation and retirement goals. Could you use help determining whether you have enough retirement savings to achieve your goals? Creative Planning can help. Our experienced professionals help clients make smart financial decisions that take into account a wide range of personal and economic factors. We’d be happy to help you determine a retirement strategy that makes sense for your personal financial situation. To get started, please e-mail or call us at [email protected] or 979-694-9100

Source: Kratz, AJ. Creative Planning, 6 June 2024. Financial Planning. Will Your Savings Last in Retirement? https://creativeplanning.com/insights/financial-planning/savings-last-retirement/?utm_source=pardot&utm_medium=email&utm_campaign=stw

September Monthly Economic Market Update
Traditions Wealth Advisors
Greysen Golgert/Brien L. Smith CFP®
Economic Analyst Intern/Chief Investment Officer
September 27, 2024

Federal Open Market Committee (FOMC) members elected to cut the federal funds rate by 50 basis points during their September meeting. After the cut, the official rate range is 4.75 to 5%, but this does not mean interest rates—the costs associated with borrowing—are within that range for all loans. The Federal Reserve sets this rate to dictate the interest rate that banks must pay when they borrow from other banks on an overnight basis. This rate on overnight lending between banks has significant downstream effects that change the interest rates on commercial loans, auto loans, mortgages, and more. Money will essentially become cheaper to borrow for businesses and individuals as a result of the FOMC decision to slash rates. Growth, inflation, and the unemployment rate are all affected by this decision because it will change the amount of borrowing and investment that occurs in the economy. Rates are typically hiked to keep inflation low and lowered to keep employment at maximum sustainable levels by fostering economic growth.

The central bank’s September decision was a pleasant surprise for financial markets, with major indices rising to new heights (record highs for the DJIA and S&P 500). The FOMC had kept the fed funds rate at its previous level of 5.25 to 5.5% for well over a year, and this rate cut shows that the Fed is no longer committed to restrictive policy, which is a major green light for investors. Most economists agreed that it was time for the cutting cycle to begin, with some prominent economists even arguing that it should have begun at the FOMC’s last meeting in July. All of the FOMC members saw the need for cuts too, but there was a surprising point of dissent not seen during Jerome Powell’s tenure as chair of the Fed. Taking issue with the size of the cut, Federal Reserve Governor Michelle Bowman was the first governor to dissent from an interest rate decision since 2005. Understandably, Bowman does not want to risk reinflation when inflation is finally close to the target rate of 2% and the economy has been robust despite a weakening labor market. On the other side of the discussion, proponents of the 50-point cut argue that inflation is under control and the Fed should seek to be proactive instead of reactive. As a data-driven entity, the Federal Reserve is often backward-looking, meaning that they primarily rely on trends in past data instead of forecasts to make decisions. This has led to situations in the past where the Fed waited too long for more data and got burned as a result (most recently during the inflation episode of 2021-2022). As the bold rate decision suggests, this Fed seems to be learning from previous mistakes. We have yet to see what the broader impact of looser monetary policy will be at this time, but optimism for a soft landing and continued growth is high.

At his press conference following the FOMC meeting, Jerome Powell expressed optimism and confidence in this US economy where GDP grew by 3.0% in Q2, and projections have Q3 growth at 2.5%. He acknowledged that the Fed’s “intention is really to maintain the strength that we currently see in the US economy.” As for inflation concerns, recent PCE—Personal Consumption Expenditures—index readings certainly support the Fed’s decision to loosen monetary policy by cutting interest rates. For the month of August, PCE and Core PCE­—excluding volatile food and gas prices—prices rose by 0.1%, bringing the year-over-year increases to 2.2% and 2.7%, respectively. We need more data to determine the effect this cut will have on inflation in the coming months, but those numbers are remarkably close to the Fed’s target year-over-year inflation rate of 2%. Ideally, inflation will continue cooling in 2024 and hold steady between 2 and 2.5% for 2025. In the meantime, all eyes will be watching how the Fed’s outlook evolves, and what federal funds rate they plan on targeting as this cycle gets underway.

Sources:
https://www.capitalgroup.com/advisor/insights/articles/fed-just-cut-interest-rates-now-what.html
https://www.wsj.com/economy/central-banking/the-fed-aims-to-repeat-greenspans-1990s-masterpiece-69613b85
https://www.crossmarkglobal.com/wp-content/uploads/Dolls-Deliberations-Weekly-Investment-Commentary_092324_FINAL.pdf