You’ve worked hard to build your nest egg — but how can you ensure it will be enough to get you through retirement and provide for your loved ones after you’re gone? We’ve outlined six strategies that can help you protect your wealth in your golden years.
1. Be flexible with your withdrawal strategy.
While the 4% rule can be a good starting point in determining how much you can afford to withdraw each year, your withdrawal strategy should be flexible to accommodate an ever-shifting market. For example, if your portfolio experiences sharper declines than expected, you may need to limit increases in your withdrawals, or even reduce your withdrawals, to better position your portfolio to provide for your long-term needs. Your financial advisor can work with you to determine how to adjust your withdrawal strategy throughout retirement.
2. Adopt lower-risk investment strategies — for the most part.
If you are withdrawing assets to meet your retirement income needs, you should consider keeping a year’s worth of income in cash and another three to five years’ worth of income in short-term fixed-income investments to help meet your near-term income needs and potentially prevent you from having to sell assets in a down market.
However, you’ll also still need intermediate- and long-term fixed-income investments as well as growth investments (like equities) to help build your portfolio and keep up with inflation. Even if you’re in your later retirement years, a small allocation to growth investments can provide diversification benefits, increasing your return potential without increasing your overall risk. As a reminder, diversification does not guarantee a profit or protect against loss in declining markets.
3. Take your required minimum distributions.
You’re generally required to start making minimum annual withdrawals from your tax-deferred retirement accounts, such as your 401(k) and traditional IRA, at a certain age. You’ll take a significant hit if you don’t: The IRS levies penalties for not taking the required minimum distribution (RMD) on time. While you may not have much control over your RMD, you do have options for how to allocate that money that can help protect your other assets or pay for other expenses like permanent life insurance.
If you’d like more information on the requirements of your RMD, be sure to get in touch with your Edward Jones financial advisor. Additionally, the IRS provides resources to help you calculate your RMD..
Note: As a result of the SECURE 2.0 Act, the RMD beginning age increases to 73 in 2023 for individuals who turn 72 in 2023, while the penalty for RMDs not taken is reduced to 25%.
4. Make your RMD work for you.
If you need your RMD to pay for your living expenses in retirement, it should be one of the first sources you draw from since you’re required to take that money anyway. If you don’t need it, though, consider reinvesting the cash into a taxable account so it can continue to grow. Or, if you want that money to go to others, you can open a 529 education savings account for your grandchildren or consider a trust for your heirs.
Additionally, once you reach age 70½, you can make a qualified charitable distribution (QCD) by transferring assets directly from your IRA to a qualified charity. A QCD can satisfy all or part of your RMD from your IRA, and for 2023, you can exclude up to $100,000 of QCDs from your taxable income per taxpayer, which can help lower your tax bill.
Or, since it’s a good time to be thinking about your legacy, consider using your RMD to cover life insurance costs. You can put this money into an irrevocable life insurance trust, which provides estate tax benefits and also typically lets you avoid gift taxes.
5. Designate a trusted contact.
Designating a trusted contact helps give your finances an extra level of protection by enabling your financial advisor to contact someone should he or she suspect you may be experiencing diminished capacity or that you may be subject to financial fraud or exploitation. If you have yet to designate a trusted contact, choose someone you trust, such as a family member, neighbor or friend. It’s important to note that this person would not be given account information or have the power to make decisions for you.
In addition, you might want to consider giving a trusted individual the power of attorney, which authorizes that individual to make medical or financial decisions on your behalf if you’re unable to do so due to illness or disability. Unlike a trusted contact, someone with power of attorney can make decisions for you. You may also want to consider an advanced medical directive or living will to specify the extent and type of medical care you want to receive should you become unable to communicate your wishes.
6. Review your estate plan.
Part of protecting your wealth is making sure that it goes to the right people after you’ve passed on, which is why regularly evaluating your estate plan (or creating one if you haven’t already) is essential. This includes reviewing:
- Your will, which outlines how you want your estate to be handled upon your death
- Your trust (if applicable), which allows you to designate a trustee to oversee the use of an asset on behalf of a beneficiary
- Your beneficiary designations on your retirement accounts and life insurance policies as well as any Transfers or Payables on Death (TOD and POD) you may have on other accounts and property
Also, if leaving a legacy is important to you, you’ll want to review whether you are on track to meet your legacy goal.
To learn more about how Edward Jones can help you create an effective strategy for helping you achieve your retirement goals, reach out to an Edward Jones financial advisor today.
Katherine Tierney is a Senior Retirement Strategist on the Client Needs Research team at Edward Jones. The Client Needs Research team develops and communicates advice and guidance for client needs, including retirement, education, preparing for the unexpected and leaving a legacy. Katherine has more than 15 years of financial services and retirement experience. She is a contributor to Edward Jones Perspectives and has been quoted in various publications.
Meagan Dow leads the Analyst team within Edward Jones Client Needs Research. This team focuses on creating advice and guidance helping investors prepare for retirement, enjoy their retirement, save for education, plan their estates and protect their financial goals.
Meagan is a Chartered Financial Analyst and a Certified Financial PlannerTM.