INSIGHTS

Let this sink in: given today’s extended life expectancies, there is an increasing probability you and/or your spouse will be retired for 30 years or even longer. So, the question we are asking is, do you have a retirement income strategy that will sustain you and your spouse for three decades of retirement? 

Many people might not plan accordingly, which can cause stress or, worse, compromises later in life when they have fewer options. As Houston retirement planning specialists, the Precedent Wealth Partners team helps successful individuals and families build sustainable retirement plans that focus on retirement income streams that can last a lifetime.

Today’s blog will examine various ways to produce sustainable retirement income streams and strategies you can use to pursue financial independence in retirement. 

Start by Understanding Your Retirement Expenses

First, you need to create a clear picture of your future expenses. Think about your current spending and how that might change once you are retired. For example, some costs, like commuting and work-related expenses, will disappear. But others, like healthcare, travel, or personal interests, may increase. Getting a handle on these numbers is crucial to knowing how much you’ll spend in the future. 

It’s important to be very realistic when identifying your expenses. Error on the side of having higher expenses, so there is a cushion that helps you cover unexpected expenses.

A frequently overlooked expense is the impact of inflation on the purchasing power of your income. Factor in the reality that the cost of goods and services will be higher as the years go by. 

Finding the Right Houston Financial Advisor 

So, how do you ensure your savings last as long as you do? This is where a fiduciary financial advisor in Houston can play a pivotal role in your ability to realize the type of retirement you have envisioned for you and your spouse. 

A fiduciary financial advisor is legally obligated to act in your best financial interests. Unlike some advisors who sell financial products to earn commissions, a fiduciary will focus on what’s best for you. This type of financial professional can help you build a retirement income strategy tailored to your specific needs.

Identifying and Diversifying Your Retirement Income Sources

When planning for retirement, it’s important to have different sources of income available to help you maintain your preferred lifestyle. Understanding how the various sources fit into your financial plan is crucial for building a sustainable retirement strategy. A financial planner in Houston, TX, can create a sustainable retirement plan based on your financial goals, expenses, timelines, and sources of income. 

• Social Security: One of the most secure sources of retirement income, Social Security benefits are based on your lifetime earnings and the age at which you start receiving benefits. Delaying benefits beyond your full retirement age can increase your monthly payments. The decision on when to start benefits is a crucial planning decision.
• Pension Plans: If you have a pension, you’ll receive a regular income from your employer during retirement. Although pensions are becoming less common, many public sector and some private sector employers still provide them.
• Personal Savings and Investments: This includes money saved in taxable savings accounts. Strategic management of these accounts can help maximize income and minimize taxes. 
• Traditional Retirement Accounts: This includes employer 401k’s and traditional IRAs. Contributions to these accounts are typically pre-tax, earnings are tax-deferred, and distributions are taxable. Required Minimum Distributions (RMDs) generally must begin at age 72.
• Roth IRAs and Roth 401(k)s: Contributions are made with after-tax dollars, earnings are tax fee, and distributions are tax-free when certain conditions are met. There are no RMDs for Roth IRAs, allowing your savings to grow tax-free for as long as you like. This makes Roth IRAs very important to consider in your estate planning.
• Annuities: These insurance products can provide a guaranteed income stream for life or a specified period. There are various types of annuities, such as fixed, variable, and indexed, each with features and benefits. Cost analysis is critical in this area.
• Dividends and Interest from Investments: Income from dividend-paying stocks, bonds, and mutual funds can provide a predictable cash flow stream. This income can supplement other retirement sources and help preserve your principal investment.
• Rental Income: If you own rental properties, the income generated from these investments can provide a consistent and potentially growing source of cash flow. That’s because many rental agreements are indexed to inflation.
• Part-Time Work or Consulting: Some retirees work part-time or take on consulting projects to supplement their income. Many underestimate how impactful this can be to your long-run success. This can also provide a sense of purpose and keep them actively engaged in work-related projects.
• Home Equity: In dire situations, you can tap into your home equity through a reverse mortgage or consider downsizing and moving to a less expensive area. These options can provide additional income for your retirement.
• Inheritance: While not something you can plan on, an inheritance from family members or loved ones can significantly boost your retirement income. Managing inherited assets wisely ensures they positively contribute to your lifestyle and financial security.

Additional Retirement Strategies to Consider

Managing your tax liabilities in retirement is crucial. Every dollar of tax is one less dollar you have for your personal use. 

A fee-only financial planner in Houston can help you develop a tax-efficient withdrawal strategy. This might involve taking money from your taxable accounts first, then moving on to tax-deferred accounts like traditional IRAs, and finally taking distributions from your tax-free accounts like Roth IRAs. This approach can help minimize the taxes you pay on withdrawals, allowing your savings to last much longer. However, this is not a “one-size-fits-all” question.

Your investments must continue to work for you, even during retirement. They provide the income you live on and offset the erosive impact of inflation.

This usually means finding the right balance between risk and reward. Your financial advisor might recommend a mix of dividend-paying stocks, bonds, and other income-generating investments. The idea is to create a portfolio that provides regular income while allowing some growth to keep pace with inflation.

Of course, investing always involves some level of risk. As you approach and enter retirement, managing this risk with caution is important. However, it is also important to note your assets must produce income and offset inflation for the next 30 years. This is why it is important to avoid spending principal whenever you can. The principal is retained to produce income in the future.

Your advisor can help you develop a strategy that balances the need for income with the need to protect your principal. This might involve reducing your exposure to volatile investments and increasing your holdings in more stable, income-producing investments.

One last comment on healthcare. You already know it will be one of your biggest expenses in retirement, and its cost is rising faster than inflation. You need to plan for this expense very carefully. This includes routine medical expenses and the potential need for long-term care later in life: assisted living, skilled nursing, or memory care. 

A fiduciary Houston, TX advisor can help you explore options like long-term care insurance or building a dedicated healthcare fund to ensure you have the assets you need to cover these costs.

Finally, make estate planning a high priority. You’ve worked hard to build wealth, and passing it on according to your wishes is important. 

Precedent Wealth Partners: Your Retirement Planning Specialists 

Remember, retirement planning isn’t a one-time event. It’s an ongoing process that requires regular reviews and discussion about potential adjustments. Market conditions change, your situation may evolve, and future market conditions are unpredictable. 

Choosing the right partner for wealth management and retirement planning is crucial to securing your long-term financial future. At Precedent Wealth Partners, we pride ourselves on offering personalized fiduciary advice tailored to your unique goals and needs. Our team of fee-only financial planners in Houston is committed to acting in your best interest and providing transparent and unbiased guidance. 

Introducing WillShare, a fresh and innovative program that aligns our interests with yours. Think of it as being a co-owner of our firm. When we distribute after-tax profits to our owners, you could receive a share as credits against future fees, reducing the cost of our wealth management services. This means we’re motivated to work even harder for you, creating better experiences and fostering sustainable growth for our firm. It’s a win-win situation for everyone.

Connect with us today to learn about our retirement planning and WillShare.