How to align your investment strategy with your retirement goals

As a high-net-worth individual, your retirement goals likely extend far beyond the standard “retire comfortably” mindset. You may be thinking about maintaining your current lifestyle, ensuring financial security for your loved ones, or leaving a lasting legacy for future generations.

To achieve these objectives, aligning your investment strategy with your specific retirement goals is critical. A tailored approach to managing assets, income generation, risk management, and tax efficiency can make a significant difference in how effectively you transition into retirement—and how well your wealth serves you in the years to come.

Tailoring Your Asset Allocation: From Growth to Income Generation

In the years leading up to retirement, your portfolio has likely prioritized high-growth investments—stocks and equities—that aimed to maximize returns. However, as you near your retirement years, it’s essential to adjust your asset allocation to better align with your new needs. For some, this could mean shifting strategies to produce a stable, predictable income stream.

For example, if your portfolio is currently 70% stocks and 30% bonds, you might adjust this to 50% stocks and 50% bonds or even 40% stocks and 60% bonds, depending on your risk tolerance and time horizon. This fine-tuning can provide more stability while still maintaining some exposure to growth through equities.

The key is finding the right balance between preserving your capital, generating income, and managing risk to ensure your wealth continues to work for you throughout retirement.

The Role of Bonds and Dividend-Producing Stocks

When it comes to generating steady retirement income purely from investments, certain assets stand out. Each has its strengths and weaknesses, but together, they can provide a solid foundation for your income needs.

1. Bonds: Bonds are traditionally used to provide consistent income, with lower risk compared to equities. Municipal bonds, for example, can be particularly beneficial if you are in a high tax bracket, as they are often tax-free at the federal level. Treasury bonds, corporate bonds, and other fixed-income securities offer varying levels of risk and return, but in general, a well-curated bond portfolio can deliver reliable income without significant volatility.
2. Dividend-Producing Stocks: For investors looking to combine growth potential with income, dividend-paying stocks can be an excellent choice. Blue-chip companies with a history of consistent dividend payouts can offer a source of steady income while still providing the upside potential of stock appreciation. This strategy is particularly effective for long-term retirees who want to benefit from both capital appreciation and cash flow.

Planning for Inflation and Healthcare Costs

While it’s easy to focus on generating income for today, planning for inflation and healthcare costs in the future is equally crucial to ensure your retirement funds last throughout your retirement years. Inflation can erode the purchasing power of your income, meaning the $100,000 you need today may only be worth $70,000 in 20 years, depending on inflation rates.

To combat this, you could consider investments with inflation protection, such as TIPS (Treasury Inflation-Protected Securities) or equities in sectors like healthcare or real estate that tend to outperform inflation over the long term. Additionally, allocating a portion of your portfolio to global stocks or alternative assets can hedge against domestic inflation.

Healthcare costs, meanwhile, are a major consideration in retirement. According to recent studies, a couple retiring at age 65 will need around $300,000 to cover healthcare expenses throughout retirement. Planning for these costs involves understanding potential out-of-pocket expenses and ensuring your portfolio has enough flexibility to cover them.

You might also consider using Health Savings Accounts (HSAs), which offer triple tax advantages and can be used to pay for qualified medical expenses in retirement.

Utilizing Roth IRAs and Other Tax-Advantaged Accounts

Tax-efficient investing is an essential component of any retirement strategy. Traditional retirement accounts like 401(k)s and IRAs are tax-deferred, meaning you won’t pay taxes on your contributions until withdrawal. However, you’ll eventually pay taxes on the distributions, which can add up to a significant sum.

This is where Roth IRAs shine. Since Roth IRAs offer tax-free growth and tax-free withdrawals in retirement, they can be an excellent tool for minimizing tax liabilities during retirement. Contributing to a Roth IRA—if you’re eligible—or converting traditional IRA funds to Roth IRAs (via a Roth conversion strategy) can help ensure that a portion of your retirement funds will be tax-free when you need them most.

Additionally, consider diversifying your tax strategy by maintaining a mix of tax-deferred, tax-free, and taxable accounts. This will allow you to more effectively manage your tax liabilities in retirement, giving you more control over how and when you pay taxes on your distributions.

Balancing Drawdown Strategies and Tax Implications

Once retirement begins, one of the most important decisions is how to draw from your investments. A strategic drawdown strategy is key to maintaining your wealth throughout retirement while minimizing taxes.

You’ll likely want to withdraw from tax-deferred accounts (like 401(k)s and traditional IRAs) in later years, once you’ve exhausted other sources of income (like Roth IRAs or taxable accounts). By doing so, you can avoid triggering higher taxes early in retirement, particularly when your income may be lower.

Moreover, be mindful of required minimum distributions (RMDs). Starting at age 73, the IRS mandates that you begin withdrawing from tax-deferred accounts. These withdrawals are taxed as ordinary income, so you’ll want to plan ahead for the tax implications and potentially adjust your withdrawal strategy to minimize the overall tax burden. For many high-net-worth portfolios, it can be advantageous to initiate the drawdown strategy well in advance of age 73.

A Customized Investment Approach to Retirement

Retirement planning is not a one-size-fits-all approach—especially for high-net-worth individuals. It requires careful consideration of your personal goals, your family’s future, and the potential risks you may face. With the right strategies in place, your investments can serve as a reliable foundation for a financially secure and fulfilling retirement.

Curious about how our team of experts can create a tailored and comprehensive investment strategy just for you? Reach out to us to learn more.