Be Ready for Unexpected Expenses in Retirement. AMBA Has the Tips You Need.

Be Ready for Unexpected Expenses in Retirement. AMBA Has the Tips You Need.

January 1, 2025

Whether you’re already retired or it’s coming up on the horizon, planning your retirement is essential. Many people experience a great deal of stress when exploring their finances post-retirement. But by taking a smart, strategic approach to financial planning, you can enjoy a successful retirement and be ready for unexpected costs and concerns. AMBA has five crucial tips for income in retirement.

Outline Your Plan

The first step in preparing for retirement income is to have a comprehensive plan. A custom financial plan is a blueprint for financial decision-making. This can help ensure that all aspects of your financial portfolio work together to achieve your goals.

Be Strategically Prepared for Potential Inflation

It's important to generate income in retirement and thwart potential increases in the cost of living. Balancing short-term and long-term objectives is an effective way to do this.

It’s recommended to maintain 3 to 5 years of living expenses of living expenses in a short-term, semi-liquid investment account. A mix of bond funds works well, providing capital for opportunistic rebalancing and a monthly income. A short-term allocation to bonds can prevent you from being forced to sell equities at a loss when markets are low.

Consider investing any assets not necessary to fund your short-term needs in a diversified portfolio that focuses on growth and inflation protection. While this portfolio should align with your overall risk tolerance and investment objectives, it can include riskier assets than your short-term account.

Tax Diversification Is a Tax-Efficient Withdrawal Strategy

Increases in tax rates are a frequent reason why people wind up with less money in retirement than they anticipated. Ideally, you’ve been saving in multiple accounts with different tax treatments, such as a 401k, Roth IRA, traditional IRA, and taxable accounts. If so, you may be able to maximize your income through tax diversification. Meaning, strategically withdrawing from different accounts in different circumstances.

Taxable (non-retirement) accounts: These offer the benefits of tax loss harvesting and have fewer restrictions on contribution amounts and fewer distributions.
Tax-deferred retirement accounts, such as pre-tax IRA and 401ks: Withdrawals from trigger ordinary income taxes, as they’ve enjoyed tax-deferred growth.
Tax-exempt accounts, such as Roth IRAs: Allow tax-exempt investments to grow for as long as possible, and qualified withdrawals are tax-free.

There are two main withdrawal strategies. Choose the one that best suits your goals, tax situation, and income needs.

Using the “Traditional Approach,” you would withdraw from one account at a time. Typically, withdrawals are made from taxable accounts first, followed by tax-deferred and tax-exempt accounts. This allows the tax-advantaged accounts to grow tax-deferred and tax-free for longer. However, it may result in uneven taxable income.

The “Proportional Approach,” on the other hand, establishes a target percentage that will be withdrawn from each account each year. The amount is typically based on the proportion of retirement savings in each account type. This can help ensure a more stable tax bill from year to year. Plus, it can help you save on taxes throughout your retirement.

The benefit of a disciplined approach is that you won’t be tempted to spend more than you can afford in any given year (or less than you should enjoy!). This practice can help you maintain adequate assets for a lifetime, regardless of market volatility. An advisor can assist you with creating a distribution strategy aligned with your financial needs and tax bracket on a year-by-year basis.

Revisit and Readjust Regularly

Given the potential longevity of retirement, periodic reviews of your financial plan and income strategy are essential. Work with a qualified wealth manager who can help you understand how regulatory and market changes may impact your plan and adapt as needed to align with your evolving goals and needs.

Consider an Annuity from AMBA

Annuities are a smart and safe way to diversify your savings. You can potentially earn much more interest than CDs or savings accounts. Your association and AMBA’s Tax-Deferred Asset Protection Plan have excellent advantages, including tax-deferred accumulation of interest, a guaranteed competitive interest rate, multiple payout options, and a nursing home waiver.

Get more info at myambabenefits.info or speak with a knowledgeable representative by calling 1-866-610-4558 M-F 8am-6pm CT.