3 Key Strategies to Help You Avoid Outliving Your Money | Allworth Financial

Think back to the last time you worked on a jigsaw puzzle.

When you first emptied the box, it probably felt overwhelming—hundreds or even thousands of pieces scattered across the table. At first glance, the pieces seem disjointed and confusing. But as you methodically match each piece, the bigger picture starts to come together.

Retirement planning is a lot like that puzzle. With so many elements to consider, it can feel daunting at first. But if you take it step by step, you can put the pieces in place to create a strong, cohesive plan. And just like with a puzzle, if even one piece is missing, the picture remains incomplete—and in retirement, that could mean running out of money before you’re ready.

Here are three key strategies to help ensure that doesn’t happen.

1. Find the Right Investment Mix

A diversified portfolio is one of the most effective ways to protect your savings over the long term. Striking the right balance between stocks, bonds, and other investments is critical, as this mix should reflect your goals, risk tolerance, and income needs in retirement.

It’s a delicate balance. Too much exposure to stocks might introduce more risk than you’re comfortable with, but too little can leave you vulnerable to inflation. For instance, with inflation averaging around 2.5% annually, a $25,000 car today could cost you nearly $41,000 in 20 years.

Over the long term, stocks have historically been the best tool for outpacing inflation. And with many of us living longer—once you reach age 65, you could easily live another 20 years or more—it’s essential not to become overly conservative with your investments too soon.

Think of bonds as the shock absorbers in your portfolio and stocks as the engine. At times, you need to take more risk (the fast lane), and at other times, you need to slow down. Just like when you’re driving, the goal is to strike the right balance so you reach your destination without hitting too many bumps along the way.

2. Plan for Taxes in Advance

Taxes can have a big impact on your retirement income. Different types of retirement and investment accounts are taxed in different ways, and it’s important to understand these differences now—not just when you’re withdrawing funds.
For example:

• Withdrawals from a traditional 401(k) are taxed as ordinary income.
• In a taxable investment account, you’ll generally pay capital gains tax, which is often lower than the ordinary income tax rate.
• Withdrawals from a Roth IRA, on the other hand, are tax-free, as long as certain conditions are met.

Understanding these differences matters for two key reasons:

1.   You can start saving now in a variety of accounts to spread out your tax burden in retirement.
2.   You can take advantage of a tax-planning “sweet spot” between ages 59½ and 73 (the new age for required minimum distributions under the SECURE 2.0 Act). This window offers an opportunity to make strategic moves like:
   • Roth Conversions: Converting money from a traditional IRA to a Roth IRA means you’ll pay taxes now, but enjoy tax-free growth and withdrawals in the future.
   • Harvesting Gains: Selling investments in taxable accounts while in a lower tax bracket could mean paying a 0% capital gains tax rate.

3. Create a Personalized Withdrawal Strategy

The “4% Rule” has long been a popular rule of thumb for retirees—suggesting that withdrawing 4% of your savings annually, adjusted for inflation, should help your money last throughout retirement. While it’s a useful general guide, it’s important to remember that this rule has been tweaked over the years and may not be as reliable in today’s market conditions, where stock returns are lower, bond yields are weaker, and inflation—particularly healthcare costs—is on the rise. Relying strictly on this rule may not serve you well in the current financial environment.

Instead, your withdrawal strategy should be fully customized to your unique financial situation, factoring in all of your income sources. These may include:

• Social Security
• 401(k)s and IRAs
• Pensions
• Taxable brokerage accounts
• Real estate investments
• Other passive income streams
  
  

Each income stream has its own tax rules and implications, making it important to:

• Minimize tax liability: Strategically decide when to withdraw from tax-deferred accounts (like 401(k)s) versus tax-free accounts (such as Roth IRAs) to manage your taxable income.
• Optimize cash flow: Ensure you have a steady flow of income to cover essential expenses while also maintaining flexibility for discretionary spending.
• Adjust to market conditions: Be ready to adapt your withdrawal amounts based on changes in market performance or personal needs.
• Consider changing tax laws: Stay informed about tax legislation to make adjustments that benefit your overall financial strategy.

By creating a flexible withdrawal plan that accounts for all these factors, you can position yourself to maintain financial security throughout retirement—without worrying about outliving your savings. A dynamic approach will help ensure that your money lasts, so you can enjoy the lifestyle you've worked hard to achieve.

Final Thoughts: Let’s Put the Puzzle Together

In retirement, just like in a jigsaw puzzle, if one piece is out of place, the whole picture can be incomplete.

That’s why it’s important to have a comprehensive plan that addresses all aspects of your financial situation. Whether it’s finding the right investment mix, planning your taxes, or developing a personalized withdrawal strategy, every piece needs to fit together to create a retirement that’s secure and fulfilling.

If you’d like help putting the pieces together, reach out to schedule a free consultation. Together, we’ll build a retirement plan that fits your life and goals—one piece at a time.