4 Essential Strategies For A Successful Retirement

Life is busy. Our days are filled with activities and responsibilities. Retirement savings are the last thing on your priority list you think of when you’re young. Many people I know don’t even think about retirement at all. Retirement is real and coming faster than you may realize. Saving enough for retirement is not enough to secure your golden years. You need to protect your savings. I’m going to discuss the 4 important strategies to help optimize your retirement savings.

When planning for retirement, it is important to consider the steps you can take to protect your savings and ensure that you’ll have enough money to last throughout the course of your life. Your retirement savings can diminish over time. Developing an effective strategy for retaining the full value of your retirement savings can often be a major source of stress.

Here are four important tips to help you safeguard your nest egg and ensure a prosperous retirement future.

Here are 4 essential strategies for a successful retirement

1. Prevent inflation from decreasing the value of your savings

Some degree of annual inflation is unfortunately inevitable. Economic experts foresee an average per annum inflation rate of approximately 2 percent for the coming decades. The key to safeguarding your retirement savings from the threat of inflation is to invest in a series of reliable assets that have historically been detached from inflationary market cycles. Extensive market analysis has found that real estate equity beats inflation rates 71 percent of the time. That makes the real estate market a sound avenue for securing your retirement funds for the future.

Another type of asset that is highly effective for protecting against inflation is the Treasury Inflation Protected Securities (TIPS). These are securities that measure the rate of inflation based on the Consumer Price Index and adjust interest payments accordingly, rising in tandem with inflation, thereby insulating your investment from the threat of rising inflation rates.

2. Diversify your investment portfolio

Developing a sound strategy to weather the storms of a volatile and often unpredictable market is one of the most important facets of securing your retirement future. An experienced investor will take the necessary steps to expand their asset allocation well in advance, knowing that a more reactionary, near-term response to shifting market trends can often result in dramatic losses and even a compromised portfolio.

The importance of planning ahead cannot be overstated. You need to take the time to weigh all of your options. Don’t fall into the temptation of investing solely in equity stocks, no matter how prosperous the indexes may seem at any particular point in time.

One of the most important investments to consider when diversifying your portfolio is the fixed income, or index fund security, such as the TIPS mentioned above. Other such securities include corporate bonds and municipal bonds. They also make excellent long-term investments to add to your portfolio. The ultimate advantage of securities like these is that they monitor several indexes at once. These securities provide your portfolio with a reliable hedge against market volatility and unpredictability.

3. Take steps to minimize your taxable income

Ultimately, a percentage of your savings will be lost to taxes. They say the two things that are certain are death and taxes. I can’t agree more. Fortunately, there are a series of legal financial strategies that you can employ to reduce the long-term tax burden on your retirement savings.

One of the most effective means of reducing taxable income is to harvest investment losses in order to offset capital gains from other sources of income. This strategy involves selling in investment at a loss in order to reduce your federal income tax burden. The remaining funds are then reinvested in a highly correlated stock within the same stock market index. This prevents the government from applying the “wash-sale rule”, in which any stock that is sold and then bought again within a 30-day period is negated from federal income tax filing.

By purchasing a stock that is highly correlated, but not identical, the losses from the sale of the original stock can be used to offset the taxation of the gains made on the new stock. This allows you to take advantage of the gains of the new stock while paying only a fraction of the corresponding taxes.

Another important point to consider when planning your retirement portfolio is the Required Minimum Distributions. Remember that at the age of 70½, you’ll need to take RMDs. Here is what IRS says:

“Your required minimum distribution is the minimum amount you must withdraw from your account each year. You generally have to start taking withdrawals from your IRA, SEP IRA, SIMPLE IRA, or retirement plan account when you reach age 70½. Roth IRAs do not require withdrawals until after the death of the owner.”

Your withdrawal from tax-deferred retirement accounts will be considered ordinary income. Distributions, including earnings, are taxable income at retirement. Due to this, you may find yourself paying a significant amount of taxes unnecessary. Generally, you spend less at a retirement age (paid off home, kids moved out/are married, no job-related expenses, etc.). You probably need less money to live. However, you need to take RMDs and you’ll need to pay taxes regardless you need the money or not.

According to this rule, it’s wise to plan your retirement savings accordingly. Consider setting aside your savings to post-tax retirement accounts such as a Roth IRA.  A Roth retirement plan is an individual retirement account that allows a person to set aside post-tax income up to a specified amount each year. You can’t deduct your contribution to a Roth IRA. However, your withdrawal is tax-free, if you meet the IRS requirements.

If your employer offers a Roth retirement plan such as a Roth 401(k) or a Roth TSP, take advantage of it. If not, instead of setting aside all of your money to a traditional retirement account, you may want to set aside some of that money to a Roth IRA. However, Roth IRA contribution is limited based on your filing status and income. Having both types of retirements; traditional and Roth gives you an optimal tax saving now and later (when the time of RMDs comes).

4. Anticipate a longer life expectancy

As medical science continues to advance, your longevity is likely to increase considerably in the coming decades. A comprehensive study title “Broken Limits to Life Expectancy” published in the journal Science, found that global life expectancy has more than doubled in the past two centuries. It’s also projected to continue increasing at a rate of approximately three months per year for the rest of this century. That’s great to hear, right?

Those who reach the age of 65 in the year 2050 can expect to live about 88 years. It means they may need to rely on their retirement income for over two decades. More recent research suggests that increases in life expectancy may continue to accelerate at an unprecedented rate.

Ensuring that your retirement savings remain secure well into your golden years requires extensive planning as well as a more flexible and dynamic view of what constitutes retirement. Experts said people who are anticipating retirement should consider extending their working lives in order to preserve their nest egg well into the future. By continuing to work, you will gain the peace of mind of knowing that your retirement savings remain secure.

Many people are often discouraged by the notion of working beyond the date that they had already set aside for their retirement. However, a study published by the Center for Longevity at Standford University found that individuals who continued to work at least part-time showed better cognitive function compared to those who retired from the workforce entirely. The study also found that retirement often leaves people feeling restless and lacking a sense of direction in their lives. Making the decision to reenter the workforce can often provide a renewed sense of focus in many people’s lives.

Personally, I want to pay off our mortgage and secure a nice chunk of asset YEARS before retirement. If we wanted to retire early, we need to make sure that we have enough money to fund our kid’s college, to cover health care, and to pay for unexpected circumstances. Especially with early retirement, we’d have at least 3 decades to live.

Saving for retirement is a lifelong journey. The prospect of one day having to rely primarily on your long-term savings for years or decades can prove daunting. However, with the right financial strategies in place, you’ll be able to successfully mitigate the threats to your retirement savings while gaining the confidence of knowing that your retirement future is protected.

Have you planned your retirement? What are your financial goals?

How long do you plan to work? 

Any other retirement savings strategies I may have missed?