INSIGHTS

The real challenge for Houston retirees lies in managing their wealth correctly so that it lasts as long as they do. Thanks to rising longevity, this may be drastically more complicated for future retirees who may be retired for 30 or more years. After all, your retirement years should be the time when you enjoy the fruits of your labor instead of worrying about whether you will have enough income and assets in 20 or 30 years.
While some may think retirement planning is a set-it-and-forget-it event, it should be regarded as an ongoing process that you and your fiduciary financial advisor in Houston review regularly.
Addressing common retirement mistakes, such as underestimating longevity, ignoring inflation, or not planning adequately for rapidly rising healthcare costs, can help you build a more balanced portfolio supporting your long-term financial security, which we’ll explore more in this blog.
Retirement Mistake #1: Underestimating Longevity
One of the most common mistakes people make once they retire is underestimating their own or their spouse’s life expectancies. It’s not uncommon for couples to experience retirements that last 30 years or more. According to the Society of Actuaries’ life expectancy estimator, a married couple, both age 65 and in average health and non-smokers can expect that there is a 25% chance one of the two will survive for 31 or more years.
Advances in healthcare and a growing focus on wellness mean many people will live well into their 90s or even early 100s. Thus, failing to plan for a longer life span may lead to running out of money later in life.
Possible Solutions:
- Create a Sustainable Withdrawal Strategy
A sustainable withdrawal strategy from your retirement accounts is crucial for ensuring your money lasts as long as you do. After taking into account Social Security, one popular approach is the “4% rule”, which suggests withdrawing 4% of your portfolio in the first year of retirement and adjusting that amount for inflation each year thereafter. While that approach has some sound academic underpinning, it’s still important to consider market conditions, your health, the performance of your invested assets, and your lifestyle when determining your withdrawal rate.
A fiduciary financial advisor in Houston, like Precedent Wealth Partners, can help play a key role in creating a sustainable withdrawal strategy tailored to your circumstances, needs, and lifestyle. Their commitment to always act in your best financial interests ensures that your retirement income plan is sustainable over the duration of your and your spouse’s lives.
Diversify Your Investment Portfolio
Longevity risk can also be managed by improving the stability of your investment returns as long as you diversify your investment portfolio to minimize the risk of large losses. While shifting entirely to conservative investments like bonds might be tempting, doing so can limit your portfolio’s growth potential. Instead, consider a mix of stocks, bonds, and other assets that provide income and capital appreciation for reasonable risk.
A fee-only financial planner in Houston can help you create a diversified portfolio that balances rates of return with asset protection. By not selling investment products for commission, fee-only planners can provide unbiased advice, helping you build a portfolio to support you and your spouse through decades of retirement.
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Mistake #2: Ignoring Inflation
Inflation is the silent source of wealth erosion. Even at modest levels, over longer periods, inflation can significantly reduce the purchasing power of your assets.
For instance, if inflation averages 3% annually, the cost of goods and services will double roughly every 24 years. And some expenses, like healthcare, have a history of rising faster than inflation. If you don’t account for inflation in your retirement planning, the amount of money you thought would be sufficient could fall far short, forcing you to cut back on your living expenses or risk depleting your savings much faster than expected.
An example of this risk late in life could be one spouse living at home and the other spouse in an expensive assisted living, skilled nursing, or memory care facility.
Inflation can be even more disruptive for short periods; for example, it was 7.5% in 2021 and 6.0% in 2022. Substantial increases in withdrawal rates would offset it. Inflation also has a compound effect, making it more ominous for retirees living on fixed incomes.
Without proper planning, you might struggle with rising healthcare costs, utilities, and other essential services.
Solution 1: Inflation-Protected Investments
To combat inflation, consider incorporating inflation-protected securities, such as Treasury Inflation-Protected Securities (TIPS), into your portfolio. TIPS are government bonds that adjust their principal value based on inflation, providing a hedge against rising costs.
Solution 2: Include Growth-Oriented Assets
Another effective way to protect against inflation is by including growth-oriented assets like stocks in your portfolio. While stocks come with more risk, they also offer the potential for higher returns, which can outpace inflation over time.
Consulting with a fiduciary financial advisor in Houston, TX, can help you identify growth assets that align with your risk tolerance and retirement goals. A well-balanced portfolio with a mix of growth and income-producing assets can provide both protection and growth over the long term.
Mistake #3: Forgetting About Estate Planning
Failing to create or update an estate plan can undermine your long-term planning goals, leaving your assets vulnerable to unintended outcomes. Without a proper estate plan, your wealth might not be distributed according to your wishes, leading to potential family disputes, unnecessary taxes, and legal challenges.
The absence of an updated estate plan can result in significant delays in the transfer of assets, which might disrupt the financial stability of your beneficiaries. Over time, this oversight can erode the legacy you intended to leave behind and complicate the future for those you care about most.
Solution 1: Regularly Review Your Estate Plan
Regularly review and update your estate plan to reflect changes in your circumstances, such as marriage, divorce, the birth of children, or changes in financial status. This helps ensure your plan remains aligned with your current wishes and protects your assets as intended.
Solution 2: Don’t Try to Go It Alone
Work with a Houston financial advisor team specializing in constructing comprehensive estate plans. They can help you navigate the complexities of estate law, minimize potential tax liabilities, and ensure that all necessary documents are in place and properly executed. By taking these steps, you can safeguard your long-term planning goals and secure the future for your loved ones.
Why Partner with Precedent Wealth Partners?
Choosing Precedent Wealth Partners for your long-term planning needs means partnering with a team deeply committed to your financial success. Our approach goes beyond traditional wealth management by aligning their interests with yours, ensuring every decision is in your best interest.
With a focus on personalized service, Precedent Wealth Partners takes the time to understand your unique financial goals and challenges, providing tailored strategies that evolve as your life circumstances change. Whether planning for retirement, managing investments, or securing your legacy, their expertise and dedication help you navigate the complexities of financial planning with confidence.
A key feature of our service is the WillShare program, an innovative initiative that treats you like a firm co-owner. This program aligns your interests with those of Precedent Wealth Partners by offering you the potential to receive fee credits when profits are distributed to the firm’s owners.
These fee credits reduce the cost of your wealth management services, creating a “virtuous circle” where the firm is incentivized to work harder on your behalf, leading to a better client experience and sustainable growth for everyone involved. With WillShare, you’re not just a client but a valued partner in the firm’s success.
Connect with us today to learn more about our financial planning and investment solutions for successful individuals and families.