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Saving for retirement is important, but it’s also crucial to stay informed! Now that it’s Financial Literacy Month, we thought it would be the perfect time to discuss some things you need to know.

There’s an old saying that goes something like, “What you don’t know can’t hurt you.” You might have even used it, maybe when you came home past curfew without your parents finding out or poured your juice into the plant when no one was watching. And sure, no one being the wiser might have worked when you were young, but in retirement, what you don’t know actually CAN hurt you.

It’s important to stay informed about not just past trends, but also what you should expect as you make your way through that exciting phase of your life. It can give you a better chance to prepare for obstacles and implement a plan to overcome them. It can also help you take advantage of opportunities, especially as you look to make your money last for a quarter of a century or longer. Let’s go over five things you need to know about retirement.

  1. Market Downturns WILL Happen [1,2]

When you spend between 25 and 30 years or longer in retirement, it’s not a question of “if” you’ll encounter market downturn; it’s a question of “when.” These declines are typically referred to as “bear markets,” which are defined as market drops of 20% or more. If we use the S&P 500 as an indicator of bear markets, there have been 12 instances of significant market decline since the index’s inception in 1957. That means you should expect to face some adversity in the market once every five or six years. So, what are your options?

Well, historically, patience has been the best way to overcome market adversity, as long-term outlooks have always trended upward. It can also be helpful to work with a financial professional who can tailor your portfolio to your goals and tolerance for risk. If you’re more comfortable with risk or have a longer timeline to retirement, you may have more assets invested in the market, whereas those approaching retirement are usually advised to shift more of the portfolio into assets that are fixed, like bonds or bond alternatives.

Rebalancing your portfolio and creating a customized retirement plan as you approach retirement is advised, especially to mitigate sequence of returns risk. Sequence of returns risk is the risk of retirees facing market downturn in the few years prior or the first few years of retirement, meaning they take greater losses on greater asset totals. Again, working with a financial professional to find ways to mitigate sequence of returns risk can be helpful. Sometimes this is done by creating a stream of income with part of your retirement assets to cover your living expenses. This allows you to wait out bear markets with your remaining assets which might remain directly invested in the market.

  1. Decumulation is Just as Important as Accumulation

Yes, we all want to retire as multimillionaires, hitting on our investments and getting lucrative returns. That period of building your assets, investment and making growth-oriented decisions is often referred to as the “accumulation” phase. However, the fact is, it doesn’t matter how much money you accumulate if you don’t have a plan for how to spend it in the “decumulation” phase, after you retire and no longer have employment income coming in. Oftentimes, that plan includes a strategy to create income for your projected lifestyle, as well as a comprehensive budget dictating where that income will go. Additionally, many factors will play a role in decumulation, including taxation, legislation, your life expectancy, your spending habits and more.

We traditionally recommend getting a good idea of how much you plan to spend on an annual basis. That’s how much income you’ll likely need to create, along with a little bit of wiggle room giving you the freedom to cover emergencies or other unexpected expenses. The best way to do this is often by assessing your goals for retirement, then estimating the amount of money you’ll need to achieve them. Then, we can build a budget for you to strictly adhere to in retirement. It’s important to understand that if you start planning for retirement once you’re already there, it might be too late. If you’ve become accustomed to your lifestyle, it can be difficult to make cuts, especially when some retirees actually need more money in retirement than they did while they were working, leading us to our next point.

  1. It’s Never Too Early to Prepare [3,4,5]

Think about it. You reach the most exciting period of your life, your retirement accounts are as well-funded as they’ll ever be, and you have an endless list of things you want to do now that your time belongs entirely to you. Will you want to pull back? Not likely. That’s why it’s important to start preparing for retirement long before you call it a career, giving you the flexibility to course correct if you find that you haven’t saved enough to live comfortably. But how much do you need to live comfortably? Modern estimates say retirees have set that target figure at $1.3 million for a 67-year-old heading toward a 30-year retirement, but working with a financial professional may help you get a more accurate estimate for your unique situation. It might not require that much, depending on your plan.

A 2023 study found that the average person between the ages of 65 and 74 has saved a little over $600,000. Will that be enough? It depends. Working with a financial professional early in your career, developing your own personal retirement goals and consistently devoting a portion of your income to the recommended strategies in your plan can give you a better chance to reach the financial goals you have for your retirement.

  1. Social Security May Not Suffice [6,7]

Social Security figures to be one of the biggest sources of income for most American retirees. In fact, 40% of retirees rely on Social Security for more than half of their income, and 14% rely on it for 90% of their income or more. Sure, it’s a nice benefit, but it was never designed to be a primary source of funds in the first place. It was always a supplementary tool, originally created for the economic security of the elderly back in 1932, when the average life expectancy ranged from age 57 to 63. Now, relying on Social Security has never been more tenuous. Benefits are set to take a hit of more than 20% beginning in 2034 if no action is taken soon by Congress.

Still, action is where the problem lies. The choices appear to boil down to cutting payments for beneficiaries, raising the payroll tax rate or increasing the payroll tax increase limit. So far, all of those options have been met with opposition, presumably making benefits cuts the most likely solution. Granted, American taxpayers will always be contributing to the Social Security trust fund, meaning it’s unlikely the fund is drained completely, but it is running short, making it imperative to use other planning methods. Some of those methods can include saving more and creating more supplemental income streams to provide for your lifestyle.

  1. Risk Runs Rampant in Retirement [8,9,10]

Life expectancies continue to rise, which is fantastic news for anyone who plans to use their retirement years to check off bucket list items and spend time with their families. At the same time, it means spending more money, potentially for 20 years or longer. That can put you at risk of outliving your money, which is known as longevity risk. Then, even if you do save enough to provide for 20 to 30 years of a healthy retirement, you’ll start to introduce new factors that could drain your savings such as inflation, taxes, market, health care and long-term care risk.

Long-term care is one of the key factors that can quickly deplete your funds, and it’s easy to see why. On average, 70% of modern retirees will need some form of long-term care, and 20% will need it for five years or longer. Additionally, the cost for long-term care can run from $64,000 to $116,000 per year, and it’s not covered by Medicare because it’s a lifestyle expense as opposed to a medical expense.

That could mean enlisting in the help of long-term care insurance, which is historically expensive and useless for the 30% who end up not needing the care. Modern policies, however, can combine life and long-term care insurance, providing a pool of resources for long-term care if necessary and a death benefit to beneficiaries if not. But these policies aren’t right for everyone. We can help you compare your options and determine if they match your goals.

If you have any questions about how you can better prepare for retirement, give us a call today!
Call: (785) 410-5471



This article is not to be construed as financial advice. It is provided for informational purposes only and it should not be relied upon. It is recommended that you check with your financial advisor, tax professional and legal professionals when making any investment decisions, or any changes to your retirement or estate plans. Your investments, insurance and savings vehicles should match your risk tolerance and be suitable as well as what’s best for your personal financial situation.

Advisory products and services offered by Investment Adviser Representatives through Prime Capital Investment Advisors, LLC (“PCIA”), a federally registered investment adviser. PCIA: 6201 College Blvd., Suite #150, Overland Park, KS 66211. PCIA doing business as Prime Capital Wealth Management (“PCWM”) and Qualified Plan Advisors (“QPA”).

Pierson McAtee

Wealth Advisor
Phone: (913) 491-6226