Tag: Retirement

Physician Retirement Strategies: Making Early Retirement a Reality

Posted on by Brian Colvert

The idea of early retirement is appealing to many, but for physicians, it often feels out of reach. Despite earning high incomes, many doctors struggle to step away from their careers at an earlier age. Between student loans, lifestyle inflation, and a deep sense of identity tied to their profession, the road to financial freedom isn’t always straightforward.

Yet, retiring early as a physician is possible with the right financial planning and strategic decisions. Today, we’ll explore the key challenges physicians face when planning for retirement, common pitfalls that delay retirement, and the strategies that can help make early retirement a reality.

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Why Many Physicians Struggle to Retire Early

1. The High-Income Trap

One of the biggest reasons many physicians delay retirement is lifestyle inflation. After years of intense schooling and residency, physicians finally reach a stage where they can afford the finer things in life—private schools, luxury homes, vacations, and expensive cars. While there’s nothing wrong with enjoying financial success, an ever-growing lifestyle requires a significant amount of savings to sustain in retirement. Many physicians unknowingly fall into the “golden handcuffs” trap—earning more but also spending more, making it difficult to build a large enough nest egg to retire early.

2. A Late Start on Saving

Unlike other high-income professionals, physicians spend their early adulthood in medical school and residency, delaying their earning years. Many don’t start earning substantial salaries until their early 30s, putting them behind in the retirement savings game compared to their peers in other fields. This means they have a shorter window to accumulate enough wealth to retire early.

3. Identity and Career Attachment

For many physicians, being a doctor isn’t just a job—it’s a core part of their identity. The idea of stepping away from medicine can feel like a loss of purpose, making retirement psychologically difficult. This attachment often leads physicians to continue working, even if they are financially capable of retiring earlier.

4. The Uncertainty of Healthcare Costs

Physicians who retire early face a major hurdle: healthcare expenses. With Medicare eligibility beginning at age 65, those who retire earlier must find alternative ways to cover health insurance, which can be costly. Without proper planning, unexpected medical expenses can quickly erode retirement savings.

Most Physicians Retire After 65

Did you know that most physicians retire after age 65? According to 2021 data from the Center for Retirement Research at Boston College, the average retirement age for men is 65, while for women, it is 62. A survey from AMA Insurance Inc. found that 58% of physicians retire after age 65. This later retirement age can be attributed to factors like financial obligations, career attachment, and the high cost of maintaining a physician’s lifestyle. Additionally, different medical specialties have varying retirement ages, with some physicians, such as primary care doctors, working longer due to steady demand and others, like surgeons, retiring earlier due to the physically demanding nature of their work.

How Physicians Can Retire Early – Physician Retirement Strategies

Retiring early isn’t about making extreme sacrifices—it’s about making smarter financial decisions. Here are the key strategies that can help physicians achieve financial independence and retire early.

1. Save Aggressively

The cornerstone of early physician retirement is high savings. Physicians who aim to retire early need to save significantly more than the average worker. A common benchmark is the 25x rule—you need 25 times your annual expenses saved to retire comfortably. For example, if you spend $200,000 per year, you need $5 million saved. To achieve this, physicians should prioritize maxing out tax-advantaged accounts, such as:

  • 401(k) or 403(b) plans (especially with employer matching)
  • Traditional and Roth IRAs
  • Health Savings Accounts (HSAs)
  • Taxable brokerage accounts for additional flexibility

Automating savings and increasing contributions as income grows ensures steady progress toward financial independence.

2. Manage and Eliminate Debt

Student loans, mortgages, and other consumer debt can be a major obstacle to early retirement. Physicians should focus on paying off high-interest debts quickly while strategically managing low-interest debts.
Some strategies include:

  • Refinancing medical school loans to secure lower interest rates
  • Prioritizing high-interest debt (credit cards, personal loans)
  • Considering paying off mortgages early to reduce fixed expenses in retirement

For business or investment debt that generates income, it’s essential to weigh the cost of interest against potential returns before aggressively paying it off.

3. Diversify Income Streams

Relying solely on a physician’s salary to fund early retirement can be risky. A great way to accelerate financial independence is by creating multiple income streams. Some popular options include:

  • Real estate investments – Rental properties can generate passive income and appreciate over time.
  • Side businesses or consulting – Many physicians find lucrative opportunities in telemedicine, consulting, or expert witness testimony.
  • Surgery center or medical practice ownership – Owning equity in a profitable practice can provide significant income beyond salary.
  • Dividend and stock investments – A well-structured portfolio of dividend-paying stocks can provide ongoing cash flow.

Having multiple streams of income provides financial security and allows for a more flexible transition into retirement.

“Physician retirement isn’t about cutting back—it’s about building income streams that let you walk away when you want, not when you have to.”

4. Create a Tax-Efficient Retirement Plan

Understanding tax strategies can help physicians keep more of their earnings and grow their wealth faster. Some key tactics include:

  • Utilizing tax-advantaged accounts (401(k), Roth IRA, HSA)
  • Tax-loss harvesting to offset capital gains
  • Roth conversions to minimize future tax burdens
  • Setting up a Defined Benefit Plan (for self-employed physicians)

A tax-efficient withdrawal strategy in retirement ensures that physicians don’t pay unnecessary taxes on their savings.

5. Consider Gradual Retirement

For physicians who are hesitant about retiring abruptly, transitioning into part-time work can be a great solution. Many doctors choose to scale back their hours before fully retiring. This allows them to:

  • Maintain a steady income stream
  • Adjust psychologically to life after full-time work
  • Reduce financial pressure while still enjoying more free time

Gradual retirement can help physicians ease into their next chapter while maintaining financial stability.

“Physician retirement is not just about reaching a number—it’s about creating a lifestyle where financial independence meets personal fulfillment.”

6. Plan for Healthcare Costs

Healthcare is one of the biggest concerns for early retirees. Without employer-provided coverage, physicians must plan for insurance costs until Medicare kicks in at age 65. Options include:

  • Health Savings Accounts (HSAs) – A powerful, tax-advantaged way to save for medical expenses.
  • COBRA coverage – Extending employer-sponsored insurance for a limited time.
  • ACA Marketplace plans – Subsidized plans may be an option, depending on income.
  • Healthcare-sharing programs – An alternative for those comfortable with non-traditional healthcare coverage.

Being proactive about healthcare planning ensures that medical expenses don’t derail an early retirement plan.

FAQs on Physician Retirement

Q: How much does the average doctor retire with?

A: The amount varies widely based on specialty, savings habits, and financial planning. However, studies suggest that many physicians retire with between $2 million and $5 million in savings. Those who aggressively save and invest often accumulate significantly more.

Q: What are the biggest obstacles to early retirement for physicians?

A: The biggest challenges include high student loan debt, lifestyle inflation, late career starts, and the uncertainty of healthcare costs before Medicare eligibility.

Q: What types of physicians are more likely to retire early?

A: Specialists with high incomes, such as anesthesiologists and radiologists, often have more financial flexibility to retire early, while primary care physicians may work longer due to lower earning potential.

Q: How can physicians transition into retirement without financial stress?

A: By gradually reducing work hours, diversifying income sources, and having a solid financial plan in place, physicians can ease into retirement with minimal financial strain.

Q: What is the best age for a physician to retire?

A: The best age varies by individual financial readiness and personal goals. While many physicians retire after 65, those who prioritize savings and investments may retire in their 50s or even earlier.

Q: As a Doctor, should I work with a financial advisor for retirement planning?

A: A financial advisor can be a valuable resource throughout a physician’s career and in preparing for retirement. According to a study by the AMA, 72% of physicians partner with a financial advisor to help them reach their retirement goals. Physicians who seek professional financial guidance tend to experience greater financial satisfaction in retirement—82% of those working with an advisor reported being satisfied with their retirement.

Physician Retirement Calculator

Curious how much you need to retire? A great way for physicians to estimate their retirement needs is by using our retirement calculator. This tool helps determine how you need to save by factoring in current income, desired retirement age, lifestyle expenses, and expected investment returns. By utilizing the calculator, you can create a clearer financial roadmap and adjust your savings strategy accordingly to achieve your retirement goals with confidence.

Physician retirement calculator

Next Steps

Physician retirement doesn’t have to be uncertain or stressful. With the right financial strategies—saving aggressively, managing debt, diversifying income, and planning for taxes and healthcare—early retirement can become a reality. Whether you’re looking to retire at 55 or simply want the flexibility to make work optional, proper planning is key.

Our team specializes in helping physicians create personalized retirement plans that align with their goals and lifestyle. Schedule a meeting with us today to take control of your financial future and start building the path to a secure and fulfilling retirement

Selling Your Business? Valuation, M&A, and Exit Strategies with Chris Blees, CPA/ABV, CM&AA

Posted on by Brian Colvert

If you’ve built a successful business and are considering selling, you likely have a lot of questions. What’s my company worth? Is now a good time to sell? How do I structure the deal to maximize my return? In this episode of The Field Guide, Brian sits down with Chris Blees,  CPA/ABV, CM&AA, an expert in mergers and acquisitions (M&A) and business exits, to unpack the M&A landscape and offer valuable insights for business owners preparing for a sale. Whether you’re planning an exit in the next few years or just starting to think about it, this guide covers market trends, valuation strategies, deal structures, and key mistakes to avoid when selling your business.

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Is Now a Good Time to Sell? The Current M&A Landscape

According to Chris, the M&A market remains strong despite economic shifts and fluctuating interest rates. While high interest rates have softened some areas of the market, the lower middle market (companies valued between $10 million and $50 million) continues to see strong demand.

The reason?

There’s still an enormous amount of private equity capital and corporate cash looking for deals. Large companies and well-funded private equity firms are often cash buyers, meaning they’re not as affected by rising interest rates as smaller leveraged buyers. This means that for business owners in this range, valuations are holding steady, and in some industries, even increasing.

Industries Seeing High Demand and Strong Valuations

Certain industries consistently attract buyers and command strong valuations due to their stability, growth potential, and recurring revenue models. Here’s a closer look at some of the hottest industries in today’s M&A market:

  • Manufacturing  – The manufacturing sector, particularly in niche markets and specialized B2B services, continues to attract strong buyer interest. Companies that integrate technology, automation, or supply chain efficiencies are especially appealing to investors and strategic acquirers.
  • Software & Technology  – Tech businesses, particularly those with SaaS (Software-as-a-Service) models, command high valuations due to their scalability and predictable recurring revenue. Cybersecurity, AI-driven solutions, and cloud computing businesses are in particularly high demand.
  • Medical & Healthcare Services – Businesses in healthcare-related sectors, such as medical billing, outpatient surgery centers, physical therapy practices, and specialized medical device manufacturing, remain hot commodities. With an aging population and continued healthcare innovation, buyers see strong long-term growth potential in these fields.
  • Home & Commercial Services – The services industry, particularly in areas like HVAC, roofing, commercial landscaping, and facility maintenance, has seen a surge in interest. Many of these businesses have transitioned to subscription-based service contracts, which create reliable recurring revenue streams—making them even more attractive to investors.
  • Construction & Trades – Historically, construction-related businesses were difficult to sell due to their reliance on cyclical demand. However, specialized trades with service agreements and maintenance contracts, such as plumbing and electrical services, have become highly sought after.
  • E-commerce & Consumer Brands – E-commerce businesses with strong brand loyalty, direct-to-consumer (DTC) models, and proprietary products are in high demand. Buyers are particularly interested in companies with well-established supply chains and efficient logistics.

One key takeaway from Chris? Companies with strong recurring revenue models tend to sell for higher multiples than those reliant on one-time transactions. Subscription-based services, long-term contracts, and membership models can significantly enhance a company’s valuation and buyer appeal.

Valuation: What Drives Your Business’s Worth?

When it comes to valuing a business, it’s all about earnings and multiples. Most buyers look at a company’s EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) and apply a multiple based on the industry, growth potential, and risk factors.

Some key factors that impact valuation include:

  • Profitability and Growth Trends – Buyers want to see consistent revenue and profit growth.
  • Customer Concentration – If too much revenue comes from a single client, buyers see risk.
  • Owner Dependence – If the business can’t run without the owner, valuation takes a hit.
  • Recurring Revenue – Subscription or long-term contract models drive higher valuations.
  • Market Conditions  – High demand in your industry can drive up multiples.

Chris emphasizes that multiple expansion (finding a buyer willing to pay a higher multiple) is often more impactful than increasing earnings alone. Finding the right buyer can double or even triple a business’s value.

How Interest Rates Are Affecting M&A

Higher interest rates generally slow M&A activity by increasing borrowing costs. However, for the lower middle market, where many buyers use cash instead of debt financing, interest rate fluctuations have had minimal impact on valuations.

In contrast, smaller businesses (valued under $5 million) and very large deals (over $100 million) are more sensitive to rising rates because buyers typically rely on financing. If your business falls in the $10-$50 million range, you may still be in a strong position to sell.

Structuring the Deal: Cash, Earnouts, and Hybrid Exits

Every sale is different, and how the deal is structured plays a major role in how much a seller ultimately takes home. Some common deal structures include:

  • All-Cash Deals – The dream scenario, but less common unless the business has strong financials and low risk.
  • Earnouts – A portion of the sale price is contingent on future performance, often used when there’s uncertainty about revenue.
  • Equity Rollovers – The seller retains partial ownership, often leading to a more lucrative “second bite of the apple.”
  • Seller Financing – The seller provides financing to the buyer, reducing upfront cash but enabling a higher overall price.

Chris points out that a hybrid exit strategy—selling 70-80% of the business while keeping 20-30% equity—can be a game-changer. Many sellers who take this approach make more on their second sale than the first, as their retained equity grows in value.

Preparing to Sell: What Business Owners Need to Do

If you’re thinking about selling in the next three to five years, now is the time to start preparing. Here’s what you should focus on:

  • Build a Strong Management Team  – Buyers want to see a company that can run without the owner.
  • Diversify Your Revenue Stream  – Reduce reliance on a single client or revenue source.
  • Clean Up Your Financials – Work with a CPA to ensure accurate, well-documented financial statements
  • Address Cybersecurity & Compliance  – Ensure your business meets all legal and regulatory requirements.
  • Work with a Tax Advisor  – Strategic tax planning years in advance can significantly reduce the tax burden from a sale.

Biggest Mistakes Sellers Make

According to Chris, the biggest mistake sellers make is focusing too much on one aspect of the deal—typically the upfront cash payout. The best deals involve a balanced mix of cash, equity, and earnouts. Other mistakes to avoid:

  • Waiting too long to plan – Selling a business takes time, and waiting until you’re “ready” often means leaving money on the table.
  • Not having a strong management team – If your business depends too much on you, buyers get nervous.
  • Not considering tax implications – Proper tax structuring years in advance can save millions.
  • Ignoring due diligence risks – Buyers will scrutinize legal, financial, and operational risks. Get ahead of them.

Final Thoughts: Is It Time to Sell?

Selling a business is one of the most significant financial decisions an owner can make. The key is preparation—understanding valuation, structuring the deal wisely, and ensuring your company is attractive to buyers.

As Chris explains, many business owners wait too long to start preparing for a sale. The best time to start planning? At least three to five years before you want to exit.

Next Steps

If you’re considering selling your business and want expert advice on valuation, M&A strategies, and tax implications, Chris and his team at Biggs Cofford Capital can help. They are based in Colorado Springs but serve clients across the country. Reach out to them today to get started.

New Year, New Limits: Financial Updates for 2025

Posted on by Brian Colvert

The start of a new year always brings a fresh perspective and an opportunity to refine your financial strategies. For 2025, several key updates to savings limits, tax rules, and financial planning tools are set to impact your money management. Whether you’re saving for retirement, building an emergency fund, or optimizing tax-advantaged accounts, staying informed is crucial to making the most of what’s available. Let’s dive into the most significant changes and how they can help you achieve your financial goals.

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1. 401k Updates: More Room to Grow

One of the most popular retirement savings tools, the 401k, is getting a boost in contribution limits for 2025. The new annual contribution limit is now $23,500 for both traditional and Roth 401k accounts, up from last year. If you’re over 50, you can add a catch-up contribution of $7,500, bringing your total to $31,000.

For those aged 60 to 63, there’s even better news. A new rule allows an enhanced catch-up contribution of $11,250 during these years. This unique provision is aimed at helping those nearing retirement maximize their savings in a short time frame. If you fall into this age bracket, it’s a great opportunity to supercharge your retirement nest egg.

What You Should Do:

  • Review your 401k contributions and adjust them to take full advantage of the new limits.
  • If you’re 60 to 63, ensure you’re making the enhanced catch-up contributions.
  • Talk to a CERTIFIED FINANCIAL PLANNER® to confirm you’re optimizing these contributions for your long-term goals.

2. IRA Adjustments: Tailored for Your Needs

Individual Retirement Accounts (IRAs) also come with updated contribution limits. For both traditional and Roth IRAs, the 2025 limit is $7,000. If you’re 50 or older, you can contribute an additional $1,000.

However, there are income thresholds to keep in mind. If you’re a high earner—making over $150,000 as a single filer or $236,000 as a joint filer—you may not qualify to contribute directly to a Roth IRA. But don’t worry—a backdoor Roth IRA is a viable option for bypassing these restrictions. This strategy involves contributing to a traditional IRA and then converting it to a Roth IRA, provided you meet certain conditions.

What You Should Do:

  • Check your income eligibility for direct Roth IRA contributions.
  • If you’re above the income threshold, explore the backdoor Roth IRA option

3. HSA Limits: Health Savings with Tax Perks

Health Savings Accounts (HSAs) are another powerful tool for those with high-deductible health plans. For 2025, the contribution limits have increased to $4,300 for individuals and $8,550 for families. Additionally, if you’re 55 or older, you can contribute an extra $1,000.

HSAs offer triple tax advantages: contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are also tax-free. Unlike Flexible Spending Accounts (FSAs), HSAs don’t have a “use it or lose it” policy, making them an excellent long-term savings vehicle for healthcare costs in retirement.

What You Should Do:

  • Maximize your HSA contributions to take full advantage of the tax benefits.
  • If you’re married and over 55, ensure both spouses contribute separately to get the catch-up benefit.
  • Consider investing your HSA funds to grow your balance for future medical expenses.

4. Tax Cuts and Jobs Act (TCJA) Expiration: What to Watch For

One of the biggest questions for 2025 is the potential expiration of the Tax Cuts and Jobs Act (TCJA). This legislation, enacted in 2017, reduced individual income tax rates and adjusted brackets. Unless Congress takes action, these provisions are set to expire, which could lead to higher tax rates for many Americans.

While there’s speculation that some or all of these changes might be extended or made permanent, it’s essential to prepare for any potential tax shifts.

What You Should Do:

  • Monitor updates on tax legislation and how changes might affect your tax bracket.
  • Consider strategies like Roth conversions to lock in current lower tax rates.
  • Work with a tax professional to optimize your tax planning for 2025 and beyond.

5. Volatility and Market Trends: Staying the Course

As with any year, 2025 will likely bring its share of market volatility. While it can be tempting to react emotionally to market swings, maintaining a disciplined approach to your investments is critical for long-term success.

What You Should Do:

  • Diversify your portfolio to minimize risk and capture growth opportunities.
  • Rebalance your portfolio periodically to align with your goals and risk tolerance.
  • Stay informed but avoid making impulsive decisions based on short-term market movements.

6. Holistic Financial Planning: A Must for 2025

Beyond the numbers, effective financial planning involves aligning your money with your life goals. Whether it’s saving for retirement, funding a child’s education, or building generational wealth, taking a holistic approach ensures that all pieces of your financial puzzle fit together.

What You Should Do:

>>> View All the updated Contribution Limits, Tax Brakets and More Here <<<

Conclusion: Start 2025 Strong

The beginning of a new year is the perfect time to revisit your financial plan and take advantage of the opportunities available. With higher contribution limits, evolving tax laws, and the potential for market shifts, staying proactive is the key to success.

By understanding the updates for 2025 and implementing thoughtful strategies, you can set yourself up for a prosperous year and a secure financial future. Here’s to making 2025 your best year yet—financially and beyond!

Should I Buy an Annuity? Pros, Cons, and Everything In Between

Posted on by Brian Colvert

 When planning for retirement, the question often arises: Should I buy an annuity? Annuities are often touted as a reliable option for ensuring steady income during retirement, but they come with their own set of benefits and pitfalls. Today we exploring the different types of annuities, their pros and cons, and considerations to help you decide whether purchasing an annuity is the right choice for you.

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What is an Annuity?

An annuity is a financial product that provides a stream of income in exchange for an upfront lump-sum payment or a series of payments. Typically sold by insurance companies, annuities are popular for their ability to provide predictable income during retirement. They’re often used to safeguard against outliving your savings, ensuring you continue to receive income as long as you live.

Annuities are not a one-size-fits-all solution, and the details can be complex. There are various types of annuities, each with different features, benefits, and risks. To understand whether an annuity makes sense for you, it’s essential to familiarize yourself with the different options available and how they fit into your overall financial plan.

Types of Annuities

1. Immediate vs. Deferred Annuities

  • Immediate Annuities: With an immediate annuity, you pay a lump sum to an insurance company, and in return, you start receiving income payments right away. These are ideal if you need an immediate income stream, for instance, soon after retirement.
  • Deferred Annuities: Deferred annuities allow you to invest money and defer income payments until a future date. The money you invest grows tax-deferred, which means you’re not paying taxes on the growth until you begin to withdraw income. This type of annuity is suitable for those who want to save for future income.

2. Fixed, Variable, and Indexed Annuities

  • Fixed Annuities: These offer a guaranteed interest rate for a specific period, providing a stable, predictable income stream. They’re one of the safest annuity options, but their returns may not keep up with inflation.
  • Variable Annuities: Variable annuities allow you to invest in a range of sub-accounts, similar to mutual funds. The income you receive varies depending on the performance of these investments, so while there is potential for higher returns, there is also a risk of losing money.
  • Indexed Annuities: Indexed annuities are tied to the performance of a stock market index like the S&P 500. They offer a guaranteed minimum return while allowing you to benefit from some of the market’s upside. However, there are usually caps and participation rates that limit how much of the market’s gains you receive.

The Pros and Cons of Annuities

Pros

  1. Guaranteed Income: One of the most appealing features, when you buy an annuity, is the ability to provide guaranteed income for life, which can be particularly comforting during retirement when the concern of outliving savings is common.
  2. Tax-Deferred Growth: Deferred annuities offer tax-deferred growth, meaning you don’t pay taxes on your investment earnings until you start taking withdrawals. This can be advantageous for individuals in high tax brackets during their working years.
  3. Peace of Mind: With an annuity, there’s a level of certainty that comes from having a steady income source. This peace of mind is valuable, especially when market volatility creates uncertainty around other investments.
  4. Inflation Protection: Some annuities offer riders that adjust your income for inflation, ensuring your purchasing power doesn’t erode over time. This feature can be especially important for maintaining quality of life during a lengthy retirement.

Cons

  1. High Costs: Annuities can be costly. Between administrative fees, mortality and expense (M&E) charges, investment management fees, and other potential costs, the expenses can significantly eat into your returns. Fees are often embedded into the contract and may be difficult to fully understand.
  2. Complexity: Annuities are notorious for being complex products. The contracts are often filled with legal and financial jargon, making it challenging for investors to understand all the terms. Hidden fees or stipulations can lead to unpleasant surprises down the road.
  3. Lack of Liquidity: Once you purchase an annuity, it’s challenging to access your principal without facing substantial penalties, particularly during the early years of the contract. The illiquid nature of annuities makes them a poor choice for those who need easy access to their funds.
  4. Surrender Charges: Most annuities come with a surrender period—a set number of years during which you must pay a penalty if you want to withdraw more than a certain amount of money. These penalties can be quite steep, often 7-10% in the early years of the annuity contract.
  5. Credit Risk: Unlike bank products insured by the FDIC, annuities are backed by the financial strength of the issuing insurance company. If the insurer goes under, there’s a risk you might not receive the income promised, although state guaranty associations provide some protection.

Should I Buy an Annuity?

The question of whether you should buy an annuity is highly individual and depends on your personal financial situation, goals, and comfort with risk. To make this decision, you’ll need to weigh several factors.

1. What Are Your Retirement Income Needs?

If you’re looking to supplement Social Security or pension income to cover essential living expenses, an annuity might be a good fit. Annuities provide a reliable source of income that can cover the gap between your guaranteed income and your required living expenses.

2. How Comfortable Are You with Complexity?

Annuities are not for everyone, and they require a certain level of financial understanding. If you’re uncomfortable with complexity or don’t have the time to do your due diligence, an annuity might not be ideal. Alternatively, working with a trusted financial advisor can help make the details more manageable.

3. Do You Value Security Over Growth?

Annuities are about security, not aggressive growth. If you are someone who is comfortable with market risk and are seeking the highest possible returns, annuities might not offer the growth potential you’re after. Mutual funds, ETFs, or stocks may be more aligned with your objectives if growth is your primary concern.

4. Are You Worried About Outliving Your Money?

One of the most significant risks in retirement is outliving your savings. An annuity can mitigate this risk by providing a lifetime income stream. If you’re concerned about longevity risk, an annuity could be a valuable tool to include in your retirement strategy.

Annuities vs. Other Investment Vehicles

Many people compare annuities to other retirement investment options, such as mutual funds, ETFs, or real estate. Below is a comparison of annuities and other popular retirement products to help you understand where they fit within a broader investment strategy.

Mutual Funds vs Annuities 

  • Risk: Mutual funds are inherently riskier than annuities because they are subject to market fluctuations. The returns can vary significantly depending on market conditions, whereas annuities often provide guaranteed income.
  • Liquidity: Mutual funds are generally liquid, meaning you can sell your shares and access your funds easily. Annuities, on the other hand, lock your money away, often with penalties for early withdrawal.
  • Cost: Mutual funds also have fees, but these are generally lower compared to annuities, which include multiple types of charges.
  • Growth Potential: Mutual funds typically offer higher growth potential than annuities, which prioritize stability and guaranteed returns over market growth.

ETFs vs Annuities 

  • Investment Flexibility: ETFs offer more flexibility and lower fees, and they are ideal for investors looking to build diversified portfolios that can be easily managed.
  • Income Guarantee: ETFs do not provide income guarantees—your investments will fluctuate with the market. Annuities provide a guarantee that ETFs cannot match.
  • Cost and Complexity: ETFs are transparent and relatively straightforward, whereas annuities can be complex and laden with fees.

Real Estate vs Annuities 

  • Income Stability: Annuities offer predictable, steady income, whereas real estate income can fluctuate depending on factors like vacancy rates, repairs, and changing rental markets.
  • Liquidity: Real estate is also not very liquid, similar to annuities, but it may provide growth in value over time, whereas annuities generally do not appreciate.
  • Management: Real estate requires active management, which can be time-consuming, whereas annuities are entirely hands-off after the initial purchase.

How to Buy an Annuity

If you’ve determined that an annuity is the right choice for you, it’s crucial to understand how to go about purchasing one.

  1. Work with a Licensed, CERTIFIED FINANCIAL PLANNER™: Annuities are complex products, and a financial advisor can help navigate the various options to find the best fit for you.
  2. Understand the Fees: Always ask about fees and charges upfront. Look for the total cost of the annuity, including administrative fees, M&E fees, and rider charges.
  3. Read the Contract Thoroughly: Annuities come with lengthy contracts. It’s essential to read the fine print or have an expert review the contract to understand what you are getting into.
  4. Consider the Issuer’s Financial Strength: Since an annuity is backed by the insurance company issuing it, make sure the insurer has a strong credit rating. You want an issuer that will still be around decades from now.

Key Takeaways

  • Annuities provide guaranteed income, making them suitable for individuals looking for safety and stability in retirement.
  • They are often complex and can be expensive, with fees that are sometimes hidden within lengthy contracts.
  • Annuities are not as liquid as other investments and are best suited for those who do not need quick access to their principal.
  • If you value guaranteed income and are concerned about outliving your savings, annuities can be a valuable part of your retirement portfolio.
  • Always read the contract before you buy an annuity, understand the fees, and work with a trusted advisor to ensure you are making the right decision.

The decision to purchase an annuity comes down to your financial goals, your understanding of the product, and your risk tolerance. By carefully evaluating your options and considering your long-term needs, you can make an informed decision that supports a comfortable retirement.

Next Steps

So, should you buy an annuity? The answer depends on what you’re looking for: stability and guaranteed income or growth and flexibility. Take your time, do your homework, and consult a professional—it could make all the difference in securing your financial future. Want a professional opinion on your specific situation? Set up a call with us today!

Navigating the Mental Shift into Retirement

Posted on by Brian Colvert

The shift into retirement is one of the most significant life transitions, yet it’s often overlooked as a time of emotional and mental adjustment. Moving from the routine of full-time work to living off savings and investments involves not just financial shifts but also psychological ones. Understanding and preparing for these changes can ease the transition and allow you to embrace this new phase of life fully.

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The Emotional Shift: Redefining Your Identity

For many, work is more than just a salary; it’s a core part of their identity. Retirement can create a sense of loss as you leave behind not only a job but also the structure, social connections, and sense of purpose it provides. These feelings are common and entirely normal.

To navigate this emotional transition:

  • Find New Purpose: Look for activities that give your days meaning, such as volunteering, hobbies, or learning new skills.
  • Stay Connected: Maintain and build social relationships to replace the daily interactions you had at work.
  • Be Patient with Yourself: Adjusting to a new routine and identity takes time. Give yourself grace as you adapt.

The Financial Shift: From Paychecks to Portfolios

The financial aspect of shifting to retirement can feel like stepping into uncharted territory. During your working years, you rely on a steady income to cover expenses. As you shift into retirement, the focus shifts to drawing from savings, pensions, and investments to sustain your lifestyle.

This shift often brings about anxiety. The fear of running out of money or having to cut back on spending is common. To ease these concerns:

  • Understand Your Income Sources: Know exactly where your retirement income will come from, such as Social Security, pensions, investment accounts, or rental properties.
  • Create a Budget: Establish a clear picture of your living expenses and compare them to your expected income.
  • Plan for Longevity: With people living longer, it’s crucial to ensure your savings last for decades. Work with a CERTIFIED FINANCIAL PLANNER™ to develop a sustainable withdrawal strategy.

Baby-Stepping Into Retirement

One of the best ways to transition smoothly into retirement is to take it step by step. Sudden changes can be overwhelming, but gradually adjusting your mindset and finances can make the process less daunting.

Start by simulating your retirement lifestyle:

  • Test Your Budget: Try living on your projected retirement income for a few months while you’re still working. This will help you identify gaps and adjust your spending.
  • Turn on Income Streams Gradually: Begin drawing from assets in phases to get comfortable with the new flow of money.
  • Track and Adjust: Monitor your expenses and income during the first few months of retirement. Be flexible and make changes as needed.

Common Challenges and How to Overcome Them

While retirement is an exciting chapter, it’s not without its challenges. Recognizing these hurdles can help you prepare and tackle them with confidence.

  • Fear of Overspending or Underspending: Many retirees worry about depleting their savings too quickly, while others underspend out of fear. Regularly reviewing your finances can provide clarity and peace of mind.
  • Unexpected Expenses: Medical costs, home repairs, or family emergencies can strain your budget. Building a contingency fund into your retirement plan can mitigate these surprises.
  • Lack of Routine: Without the structure of a work schedule, some retirees feel lost. Creating a daily routine that balances leisure, personal growth, and social activities can restore a sense of purpose.

Real-Life Example: A Gradual Transition

Consider a couple, Mark and Susan, who recently retired. Initially, they struggled with the idea of no longer receiving regular paychecks. They decided to approach their transition in stages:

  1. Simulated Budgeting: Six months before retiring, they began living solely off their projected retirement income to get a feel for their new lifestyle.
  2. Flexible Withdrawals: During their first year of retirement, they adjusted their monthly withdrawals based on actual spending, ensuring they neither overspent nor unnecessarily restricted themselves.
  3. Finding Purpose: Mark took up woodworking, a hobby he’d always wanted to explore, while Susan joined a book club and started volunteering at a local nonprofit.

By taking gradual steps, they eased their shift into retirement with confidence and now enjoy their newfound freedom without financial or emotional strain.

Tips for Thriving in Retirement

To make the most of your retirement years, focus on both financial stability and personal fulfillment:

  • Stay Active: Regular exercise and mental stimulation are vital for long-term health and happiness.
  • Keep Learning: Pursue new interests or continue education through courses, books, travel, or hobbies.
  • Work with Experts: Partner with a financial planner to ensure your retirement plan is on track and adaptable to changes.
  • Embrace Flexibility: Life is unpredictable, so build flexibility into your plans to accommodate unexpected twists and turns.

Conclusion: Embrace the Journey

Retirement is a significant transition, but it’s also a chance to craft the life you’ve always wanted. While the shift from a steady paycheck to living off your assets may seem intimidating, taking a gradual, flexible approach can ease the adjustment. By preparing financially and emotionally, you can fully embrace this new phase and enjoy the freedom and opportunities it brings.

If you’re ready to start planning your shift into retirement or need guidance navigating the transition, contact us at today! Our team is here to help you create a plan that ensures you’ll thrive in retirement.

Zoom Out: Optimizing Retirement Accounts

Posted on by Brian Colvert

Optimizing Retirement Accounts Tax Strategies

Managing and optimizing your retirement accounts and tax strategies is no small task. As you approach retirement, you may find yourself juggling a variety of accounts—401(k)s, IRAs, brokerage accounts, and even less common investments like private equity or cryptocurrency. This fragmented landscape can make it hard to see the full picture, let alone create a strategy that minimizes taxes and maximizes growth.

If this sounds familiar, it might be time to “zoom out” and look at your accounts as a cohesive portfolio. By shifting your focus from individual accounts to your overall financial landscape, you can create a tax-efficient strategy that works for your unique situation. In this post, we’ll walk you through the benefits of this approach and how to implement it.

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Why You Have So Many Accounts

It’s common for people to accumulate multiple accounts over the years. Perhaps you’ve switched jobs a few times, leaving behind 401(k)s with previous employers. Maybe you and your spouse have opened separate brokerage accounts or inherited an IRA. Add in tax-advantaged accounts like Roth IRAs and Health Savings Accounts (HSAs), and it’s no wonder your financial picture feels cluttered.

While having diverse accounts can offer flexibility, it can also lead to inefficiencies. If each account is managed in isolation, you may miss opportunities to optimize your retirement accounts and overall tax strategy or align your investments with your risk tolerance.

The Risks of Managing Accounts in Isolation

When managing retirement accounts individually, many people default to mirroring the same investment strategy across all of them. For example, they might allocate 60% to equities and 40% to bonds in every account. While this approach might feel consistent, it can lead to inefficiencies, particularly when it comes to taxes.

Each type of account—taxable, tax-deferred, and tax-free—has unique rules about how contributions, growth, and withdrawals are taxed. Ignoring these differences can result in unnecessary tax burdens, lower returns, and missed opportunities to grow your wealth.

The Solution: Viewing Your Portfolio as a Whole

The key to overcoming these inefficiencies and optimizing retirement accounts is to view your accounts as parts of a unified portfolio rather than standalone entities. This strategy, often referred to as asset location, involves placing investments in the accounts where they are most tax-efficient. By “zooming out” and considering your entire portfolio, you can optimize for both tax savings and growth.

Step 1: Understand Your Accounts

Before you can optimize your portfolio, it’s important to understand the tax implications of each account type:

  1. Taxable Accounts (Brokerage Accounts):
    Contributions are made with after-tax dollars, and you’ll owe taxes on dividends, interest, and capital gains each year.

    • Best for: Investments with low tax burdens, such as municipal bonds or tax-efficient index funds.
  2. Tax-Deferred Accounts (401(k)s, Traditional IRAs):
    Contributions are often pre-tax, and you won’t pay taxes on growth until you withdraw funds in retirement.

    • Best for: Growth-oriented investments, as taxes are deferred.
  3. Tax-Free Accounts (Roth IRAs):
    Contributions are made with after-tax dollars, but growth and withdrawals are tax-free.

    • Best for: High-growth investments, as all gains are tax-free.

Step 2: Allocate Assets Strategically

Once you understand the tax implications of each account type, you can decide where to place your investments for maximum efficiency. Your asset allocation strategy is key.

  1. Place Fixed-Income Investments in Taxable Accounts
    Fixed-income investments like bonds generate interest, which is taxed as ordinary income in taxable accounts. However, municipal bonds (munis) offer a tax-efficient alternative, as their interest is generally exempt from federal taxes (and sometimes state taxes if issued in your state).
  2. Put Growth-Oriented Investments in Tax-Deferred and Tax-Free Accounts
    Stocks and other high-growth assets are better suited for tax-advantaged accounts like IRAs and Roth IRAs. In a traditional IRA, your investments grow tax-deferred, meaning you won’t pay taxes until you withdraw the money. In a Roth IRA, growth is entirely tax-free, making it an ideal home for aggressive investments.
  3. Balance Across Accounts
    For example, if you want a portfolio that’s 50% equities and 50% bonds, you might place all your equities in a Roth IRA and all your bonds in a taxable account. Together, your accounts maintain your desired allocation, but each investment is housed in the most tax-efficient location.

Step 3: Optimize Withdrawals

As you approach retirement, the order in which you withdraw funds from your accounts can also impact your tax burden. A common strategy is to withdraw from taxable accounts first, allowing tax-deferred and tax-free accounts to continue growing. However, this depends on your specific situation, including your income needs and tax bracket.

Benefits of a Unified Approach

By treating your accounts as a whole, you can unlock several benefits:

  1. Tax Savings:
    Minimizing taxes on dividends, interest, and capital gains allows you to keep more of your money.
  2. Higher Growth Potential:
    Placing growth-oriented investments in tax-advantaged accounts lets them compound more effectively.
  3. Simplified Portfolio Management:
    Instead of managing each account individually, you can focus on your overall allocation and strategy.

Common Misconceptions

It’s easy to fall into the trap of thinking every account should have the same allocation. While consistency feels safe, it often leads to inefficiencies. Another misconception is that asset location only matters for high-net-worth individuals. In reality, anyone with multiple accounts can benefit from this strategy.

How to Get Started Optimizing Your Retirement Accounts

  1. Review Your Accounts:
    Take stock of all your accounts, including their balances, investment types, and tax statuses.
  2. Consult a Financial Advisor:
    Asset location can get complex, especially if you have a mix of account types. A CERTIFIED FINANCIAL PLANNER™  (like us, wink, wink) can help you create a strategy tailored to your needs.
  3. Monitor and Adjust:
    Life changes, market conditions, and tax laws can all impact your strategy. Regularly review your portfolio to ensure it remains aligned with your goals.

Final Thoughts

Managing and optimizing multiple retirement accounts doesn’t have to be overwhelming. By zooming out and viewing your portfolio as a whole, you can create a tax-efficient strategy that maximizes growth and minimizes headaches. Whether you’re just starting to think about retirement or already have a mix of accounts, it’s never too late to take a smarter approach.

At Bonfire Financial, we specialize in helping clients make sense of their financial landscape. If you’d like help evaluating your accounts and creating a strategy, reach out to us today.

5-10 Years to Go: Retirement Reality Check -Are You Really Ready?

Posted on by Brian Colvert

As you get closer to retirement, the financial planning landscape changes. Those final 5-10 years bring new priorities, questions, and a natural desire for clarity. Do I have enough to retire comfortably? Will my savings and investments support my lifestyle? This period is critical for setting up the financial security and peace of mind that most people seek as they step away from work. Below, we’ll dive into how to build confidence in your retirement planning by addressing key steps and practical strategies to ensure you’re ready.

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Step 1: Start with Your Expenses

The foundation of a successful retirement plan is understanding your current expenses. The goal is to get a clear picture of what it costs to live your life on a monthly and annual basis. To do this:

  1. Track your monthly spending: Look at your recent bank statements and credit card bills to get an idea of your average monthly spending. Include every category, from housing to groceries to entertainment.
  2. Account for yearly fluctuations: Certain months are often higher-spend months. For example, holiday season costs or summer travel expenses can raise expenses significantly. Make sure to average out these costs for a realistic annual spending figure.
  3. Consider future changes: Think about how your expenses might change in retirement. Will you be mortgage-free, or do you anticipate moving? Are there hobbies you plan to pursue that might increase costs?

Once you have a firm grasp on your current and anticipated expenses, you’ll have a more accurate starting point to build your retirement plan.

Step 2: Identify Income Sources

After estimating your expenses, it’s time to look at income sources you can rely on in retirement. For most people, these will fall into a few main categories:

  1. Social Security: Check your Social Security statement to see what you can expect to receive monthly. Remember that delaying Social Security benefits past your full retirement age can increase your monthly payments.
  2. Pensions: If you’re fortunate enough to have a pension, include it here. Know the details, such as whether the payout is fixed or adjusted for inflation, and if any survivor benefits are available.
  3. Investment Income: Income from investments in retirement accounts, brokerage accounts, or real estate holdings is crucial. This is where the bulk of many people’s retirement income comes from.
  4. Other Sources: You may have other income sources like part-time work, royalties, or annuities. Consider whether these will be consistent and predictable.

Tally these income sources to see how they measure up against your projected expenses. Many retirees find that guaranteed income from Social Security and pensions falls short of covering their needs. This difference, or “gap,” is what your investments need to cover.

Step 3: Calculating Your “Gap” and Understanding Withdrawal Strategies

Once you have an estimate of your guaranteed income versus your expenses, you can calculate your “gap.” This is the amount you’ll need to withdraw from savings and investments each year to meet your spending needs.

For instance, if your annual expenses are $120,000 and your guaranteed income covers only $60,000, then your gap is $60,000 per year. This is the amount you’ll need to draw from your investments to maintain your lifestyle.

Step 4: Implementing the 4% Rule

The “4% rule” is a popular rule of thumb for retirement planning. It’s a straightforward way to estimate how much you can sustainably withdraw from your investments each year without depleting your savings prematurely.

The rule suggests that if you withdraw 4% of your retirement portfolio each year, your savings should last approximately 30 years, even with inflation adjustments.

Here’s how to use the 4% rule to estimate your retirement readiness:

  1. Calculate your gap: For example, if your gap is $60,000, you’ll need enough saved to cover this annually.
  2. Divide by 4%: Divide your gap by 0.04 to estimate how much you need saved. Using our example, $60,000 / 0.04 = $1.5 million.

The 4% rule provides a conservative starting point. However, remember that it’s just a guideline. Depending on your personal situation, investment portfolio, and tolerance for risk, you may need to adjust this percentage.

Step 5: Assessing Risk and Adjusting Your Portfolio

As you near retirement, consider adjusting your investment portfolio to better align with your time horizon and risk tolerance. This often means reducing your exposure to high-risk assets, such as stocks, and increasing holdings in more stable assets like bonds or cash equivalents.

That said, maintaining some exposure to growth assets, like stocks, is still essential to keep pace with inflation over what could be a lengthy retirement. We can help you determine the right balance based on your needs and market conditions.

Step 6: Creating a Flexible Withdrawal Plan

A successful retirement plan includes flexibility. The 4% rule is a useful baseline, but there are times when adjusting withdrawals can help stretch your retirement savings further.

  1. Stay adaptable in lean years: If markets are down, consider withdrawing slightly less or pausing major expenses. Adjusting withdrawals during market downturns can prevent you from selling investments at a loss.
  2. Re-evaluate annually: Each year, assess your expenses, investment performance, and overall portfolio balance. Staying engaged helps you avoid surprises and make minor course corrections as needed.
  3. Bucket Strategy: Some retirees find it helpful to use a “bucket strategy,” where they segment their savings into short-term, medium-term, and long-term buckets. For example, keeping 1-3 years’ worth of expenses in cash equivalents can cover immediate needs, while medium and long-term investments grow to support later years.

Step 7: Plan for Taxes and Healthcare Costs

Taxes and healthcare costs are among the largest expenses retirees face, so accounting for them in your retirement planning is essential.

  1. Plan for taxes: Withdrawals from tax-deferred accounts, like traditional IRAs and 401(k)s, are typically subject to income tax. Understanding your tax liability and strategies to minimize it, like Roth conversions or strategic withdrawal planning, can make a significant difference in retirement income.
  2. Healthcare expenses: Medicare will cover some costs, but it doesn’t cover everything. Consider supplemental insurance, long-term care insurance, or creating a separate savings account for healthcare costs to ensure you’re prepared for medical expenses.

Step 8: Pay Attention to Inflation

Retirement can span two or three decades, and inflation will erode purchasing power over time. Make sure your income sources and withdrawal strategy account for inflation so your savings can cover the rising costs of living.

  1. Use inflation-adjusted estimates: When calculating future expenses, consider the effect of inflation. A 3% annual increase in expenses is a conservative estimate many financial planners use.
  2. Inflation-resistant assets: Keeping some investments in assets that typically rise with inflation, such as stocks or Treasury Inflation-Protected Securities (TIPS), can help offset inflation’s impact on your retirement income.

Step 9: Take Advantage of Catch-Up Contributions

For those 50 and older, catch-up contributions allow you to add extra money to retirement accounts, such as 401(k)s and IRAs. Maximizing these contributions can help bolster your savings in the final years leading to retirement.

  1. 401(k) catch-up contributions: As of 2024, you can contribute an extra $7,500 to your 401(k) annually if you’re over 50. This is in addition to the regular contribution limit.  >>> Check here for this year’s contribution limits <<<
  2. IRA catch-up contributions: Similarly, individuals over 50 can contribute an extra $1,000 annually to IRAs.

These catch-up contributions can add up significantly over time, especially when invested wisely.

Step 10: Seek Professional Guidance

Planning for retirement involves many variables, and even with simple rules, the calculations can become complex. Professional guidance can be valuable for ensuring your plan is realistic. We can work with you to create a tailored financial plan that addresses your unique needs, assets, and goals. We can also guide you in making adjustments and keeping your strategy on track as conditions change.

The Bottom Line: Retire with Confidence

The final years before retirement are the perfect time to refine your plan, reduce uncertainties, and build confidence in your financial future. By knowing your expenses, identifying reliable income sources, and understanding your investment strategy, you’ll be well-prepared to retire with peace of mind.

Remember, retirement planning doesn’t have to be overwhelming. Each of these steps, from budgeting to the 4% rule, provides you with a roadmap to a secure retirement. Following these strategies and seeking guidance when needed can set you up to transition from work to retirement with confidence, knowing you’ve planned well for the years ahead.

Are You Making These 3 Common Retirement Mistakes?

Posted on by Brian Colvert

Retirement marks a significant life transition, one that requires careful planning and a realistic understanding of what lies ahead. Despite all the guidance and information available, there are still many common retirement mistakes that many pre-retirees make, often without realizing the potential consequences. Avoiding these pitfalls can help ensure a comfortable and worry-free retirement. Let’s take a closer look at these three overlooked areas.

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Retirement Mistake #1 – Underestimating Healthcare and Medical Expenses

One of the most significant challenges that retirees face is handling healthcare costs. Many assume that Medicare will cover all their needs once they turn 65, but that’s far from the truth. While Medicare offers some assistance, it doesn’t cover everything. Parts of it, like Medicare Part B and Part D come with premiums based on your income.

According to recent studies, the average retired couple may need over $300,000 to cover medical expenses during retirement. And that number could rise as healthcare costs continue to increase. So, if you’re approaching retirement without a solid plan for medical expenses, you could be facing a serious shortfall.

Medicare Part A, which covers hospital stays, has its limits. It doesn’t provide full coverage for all medical costs, especially when it comes to long-term care like nursing homes or in-home care for chronic illnesses. You may find yourself needing additional Medicare Advantage plans or Medigap policies, both of which come with their own costs.

Long-term care is another often-overlooked area. No one wants to imagine themselves needing assistance due to age-related ailments. However, the reality is that many people will require some form of long-term care. Consider investing in long-term care insurance, especially if there’s a family history of illnesses like Alzheimer’s or Parkinson’s. Waiting too long to secure this type of insurance can result in significantly higher premiums or even disqualification based on pre-existing conditions.

Retirement mistakes are common. Preparing for healthcare costs in retirement is essential to avoid the unexpected financial strain, as Medicare alone won’t cover all expenses. By planning ahead and considering options like Medigap and long-term care insurance, you can better protect your financial future and ensure access to necessary care.

Retirement Mistake #2 – Ignoring Car Replacement and Maintenance Costs

While healthcare is a commonly discussed retirement expense, many people overlook the cost of maintaining and replacing their vehicles. Most retirees own a car and rely on it for day-to-day activities, whether it’s visiting family, going to the grocery store, or driving to leisure activities.

Cars don’t last forever, and depending on when you retire, you may need to replace your vehicle a few times. Cars come with maintenance costs, which only increase as the car ages. Routine expenses like oil changes, new tires, and brake repairs can add up, and unexpected repairs can come as a nasty surprise to anyone living on a fixed income. Beyond this, the price of new vehicles has been rising steadily, with even modestly priced cars costing tens of thousands of dollars. If you’re accustomed to driving luxury cars, that expense can easily double or even triple.

So, as you budget for retirement, make sure to factor in the potential costs of replacing your vehicle every 8-10 years. You’ll also want to consider rising costs due to inflation, especially if you’re hoping to drive a newer or more luxurious model. By setting aside funds specifically for car replacement and maintenance, you’ll be better equipped to handle these expenses without impacting other areas of your retirement budget.

Overlooking vehicle replacement and maintenance costs is another one of the common retirement mistakes that can lead to unexpected financial burden. By planning for these expenses, you can avoid costly surprises and keep your retirement budget on track.

Retirement Mistake #3 – Failing to Adjust Lifestyle Expectations to Fit Retirement Income

If you’re a high-income earner, you may be accustomed to a certain lifestyle—maybe it’s regular vacations, fine dining, or even memberships to clubs or organizations. Unfortunately, a luxurious lifestyle can be tough to maintain on a retirement budget.

The first step is to ensure that your savings can support your lifestyle. A general rule of thumb is to aim for about 70-80% of your pre-retirement income to maintain your standard of living. This can vary widely depending on your specific circumstances. For those accustomed to high incomes, this percentage can still leave a substantial gap if your expenses are disproportionately high.

Beyond savings, it’s essential to evaluate your current lifestyle and determine where adjustments might be necessary. You may need to make trade-offs to align your retirement spending with your income. For example, if luxury travel is a high priority, you might need to scale back in other areas, such as dining out or leisure activities. Conversely, if you have a passion for fine dining, you might consider fewer vacations or shorter trips to balance costs.

Take time to analyze your current spending and decide which elements are most important to you. If frequent travel is a priority, perhaps you can scale back in other areas to accommodate this passion. If you enjoy dining out, consider how often you’ll want to do so during retirement and factor that into your budget. It might mean fewer trips to five-star restaurants, but with thoughtful planning, you can still enjoy occasional indulgences.

You may also need to make some lifestyle adjustments to ensure your retirement savings last. This could involve downsizing your home, traveling less frequently, or taking a more conservative approach to discretionary spending. A financial advisor can help you analyze your spending and create a budget that balances your priorities with your resources.

Neglecting to adjust your lifestyle to match retirement income is a common mistake that can strain your finances. By recognizing these retirement mistakes early and planning accordingly, you can avoid financial stress and achieve a more sustainable retirement.

In Conclusion

The key to avoiding these common retirement mistakes is to start planning early. Work with a CERTIFIED FINANCIAL PLANNER™ to build a comprehensive financial plan that addresses healthcare costs, vehicle expenses, and lifestyle adjustments. By taking these steps now, you’ll be better prepared to enjoy a comfortable retirement free from financial stress. To recap:

Healthcare: Make sure to consider all aspects, from Medicare premiums to long-term care insurance.

Vehicles: Create a fund for car replacement and maintenance. Remember that you may need to replace your car multiple times during retirement.

Lifestyle: Be realistic about what your savings can support, and prioritize the areas that matter most to you.

Incorporating these three considerations into your retirement plan will ensure that you’re prepared for the reality of retirement, allowing you to focus on what truly matters—enjoying this new chapter of your life.

Next steps:

If you’re looking to avoid these retirement mistakes and plan confidently for the future, let’s chat. Schedule a call with us today to start building a retirement plan that works for you!

401k Do’s and Don’ts: Smart Strategies as You Near Retirement

Posted on by Brian Colvert

As retirement approaches, the way you manage your 401k becomes more critical than ever. With the right strategies, you can protect your hard-earned savings, minimize risks, and set yourself up for a comfortable retirement. In this Podcast, we’ll explore essential do’s and don’ts for managing your 401k as you near retirement, helping you make informed decisions about your financial future.

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1. Understand How Your Risk Tolerance Changes Near Retirement

Don’t assume your risk tolerance remains the same as you age. When you’re younger, it’s easier to take on higher risk for the potential of higher returns, as you have more time to recover from any downturns. However, as you approach retirement, you should reevaluate your tolerance for risk.

Do consider shifting towards a more conservative investment strategy. This could involve reallocating your assets to include more bonds or other fixed-income securities, which tend to be less volatile than stocks. Target-date funds, which automatically adjust your investment mix as you age, can be a convenient way to ensure your portfolio becomes more conservative over time.

2. Avoid Overly Aggressive Investments

It can be tempting to chase high returns, especially if you’re trying to catch up on retirement savings. However, overly aggressive investments can expose you to significant losses, especially if there’s an economic downturn close to your retirement date.

Don’t let short-term market trends drive your decisions. Avoid investing heavily in high-risk stocks based on recent performance. The market’s past performance doesn’t guarantee future results, and downturns can occur suddenly.

Do seek a balanced portfolio that aligns with your updated risk tolerance. Consider consulting a CERTIFIED FINANCIAL PLANNER™ to review your portfolio and ensure it aligns with your long-term goals and timeline. This can help protect you from the emotional impulse to sell during market dips or take unnecessary risks.

3. Keep Contributing to Your 401k

Many people assume they should stop contributing to their 401k once they hit a certain age, but there are often advantages to continuing to save. The closer you get to retirement, the more crucial these contributions become.

Do take advantage of catch-up contributions if you’re over 50. These allow you to contribute additional funds beyond the standard annual limit, giving you a boost in retirement savings. Make the most of your employer’s match as well, as this is essentially free money going into your retirement fund.

Don’t assume that just because retirement is near, saving becomes less important. Every contribution counts, as it not only grows through investment returns but also helps keep you on track with your financial goals.

4. Regularly Rebalance Your Portfolio

Over time, certain investments in your portfolio may grow faster than others, leading to an unintended imbalance in your asset allocation. This can increase your risk exposure if, for instance, stocks outperform bonds, making equities a larger portion of your portfolio than originally intended.

Do rebalance your portfolio at least once a year to ensure it aligns with your target asset allocation. As you approach retirement, your target asset allocation will likely lean more toward stability and income generation rather than growth. By rebalancing, you can reduce your risk and bring your portfolio back in line with your retirement goals.

Don’t ignore market fluctuations. By rebalancing, you’re essentially selling high and buying low, which can be a disciplined approach to investing. If you’re unsure how to rebalance your portfolio, a financial advisor can help you assess and adjust your asset allocation as needed.

5. Be Cautious with Annuities

Annuities can be an attractive option because they offer guaranteed income. However, they are not a one-size-fits-all solution and can come with high fees and complex terms.

Don’t buy an annuity without fully understanding how it works and whether it’s appropriate for your situation. Some advisors may push annuities due to the commissions they receive, but that doesn’t mean it’s the right choice for everyone. Annuities can limit your liquidity and may have penalties for early withdrawal.

Do consider an annuity if it aligns with your overall retirement plan and you’re looking for a stable income source. Work with an advisor who will explain the pros and cons without a bias toward selling you a specific product. Annuities might be suitable in situations where you need a guaranteed income stream, but it’s essential to weigh the costs and benefits carefully.

6. Make Tax-Efficient Withdrawals

When you start withdrawing from your 401k in retirement, you’ll need to pay income taxes on the distributions. Depending on your total retirement income, these withdrawals could push you into a higher tax bracket. See what tax bracket you are in here. 

Do plan your withdrawals strategically to minimize your tax burden. If you have other retirement accounts, such as a Roth IRA, consider taking distributions from them in a way that helps you manage your tax liability. For example, withdrawing from a traditional 401k and a Roth IRA in the same year can help you stay within a lower tax bracket.

Don’t withdraw large sums from your 401k in a single year unless necessary. Large withdrawals can trigger higher taxes and potentially Medicare surcharges. By managing your withdrawals thoughtfully, you can stretch your savings further and avoid paying more tax than necessary.

7. Consider the Role of Social Security

For many retirees, Social Security forms a crucial part of their retirement income. However, when and how you claim these benefits can significantly impact the amount you receive over your lifetime.

Do research the optimal age to start claiming Social Security based on your situation. While you can start as early as age 62, waiting until full retirement age (or even age 70) increases your monthly benefit. If you’re married, coordinating benefits with your spouse can also maximize your household income.

Don’t overlook Social Security as a part of your retirement plan. It’s essential to understand how your 401k distributions and Social Security benefits work together. A well-planned approach to claiming Social Security can help ensure you get the most out of your retirement income sources.

8. Review Beneficiary Designations

Life changes, such as marriage, divorce, or the birth of a child, may impact whom you want to inherit your 401k savings. Your retirement accounts don’t pass through your will but are instead directed by the beneficiary designations on the account.

Do periodically review and update your beneficiary designations to ensure they reflect your current wishes. This is a simple task but can prevent potential disputes or complications for your heirs. Make sure your beneficiaries are aware of their status, so they know what to expect.

Don’t assume that your will covers your 401k. Many people make this mistake and inadvertently leave their retirement savings to the wrong person. By keeping your beneficiary designations up to date, you can avoid this oversight.

9. Work with CERTIFIED FINANCIAL PLANNER™ (CFP)

As you get closer to retirement, your financial decisions become more complex. It can be challenging to navigate investment choices, tax implications, and withdrawal strategies without professional guidance.

Do consider consulting a CERTIFIED FINANCIAL PLANNER™ (CFP) who specializes in retirement planning. A CFP can provide personalized advice that considers your entire financial picture and helps you create a tailored strategy for your 401k and other retirement assets.

Don’t go it alone, especially if you feel uncertain about any aspect of your retirement planning. The insights and guidance of a professional can be invaluable, particularly as you make significant decisions that will impact your future financial security.

10. Stay Informed and Flexible

The financial landscape is always changing, with new laws, products, and strategies emerging regularly. As a retiree or soon-to-be retiree, staying informed can help you make better decisions and adapt to changing circumstances.

Do continue educating yourself on retirement topics, whether through podcasts, articles, or books. Financial literacy can help you feel more in control and make informed choices.

Don’t assume that your plan is set in stone. Flexibility is essential as you move through different stages of retirement. Regularly reviewing your plan and making adjustments as needed can help you stay on track.

In Conclusion

Planning for retirement involves more than simply building a nest egg. By paying attention to these 401k do’s and don’ts in retirement, you can make smarter choices about your savings, protect your assets, and set yourself up for a more secure retirement. Remember, retirement planning is an ongoing process, and the strategies that work for you today may need adjustment in the future. By staying proactive and seeking guidance when necessary, you’ll be well-equipped to make the most of your retirement years.

Next Steps:

Ready to take control of your retirement planning? Schedule a call with us today to discuss your 401k strategy and make sure you’re on the right path for a secure and comfortable retirement. Contact us at today.

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