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Author: Kevin Lao

Sequence of Returns Risk: 7 Strategies to Protect Your Retirement

Recently, I talked about the 4% rule and how it’s historically conservative, with average withdrawal rates potentially as high as 7% annually. But here’s the kicker: averages hide the risk of when bad returns happen.

This is what we call sequence of returns risk. Imagine retiring at the end of 2007 with $2 million saved. You’re ready for the good life, ready to enjoy retirement. Then the market drops 51%. Suddenly, that $140,000 withdrawal doesn’t look very safe anymore. 

In today’s article, we’ll highlight some major market downturns over the last few decades and discuss seven real strategies to help you protect against this dreaded sequence of returns risk. 

What is Sequence of Returns Risk? 

Sequence of returns risk is the danger that the timing of withdrawals from your retirement account could negatively impact your portfolio’s overall rate of return. This risk becomes particularly significant when you begin withdrawing funds from your investment portfolio in retirement. 

The sequence of returns in the first few years of retirement can determine whether your savings last a lifetime. Unlike pre-retirement years, when you’re accumulating assets, the sequence of returns matters significantly once you start withdrawing money. 

For example, two retirees with identical portfolios and withdrawal rates can have dramatically different outcomes based solely on when they retire. If you retire just before a market downturn, your portfolio may never recover, even if the market eventually rebounds. 

Historical Market Downturns: A Look at Bear Markets 

To understand the real impact of sequence of returns risk, let’s examine some significant market downturns that could have affected retirees. 

The Dot-Com Bubble (2000-2002) 

This period was particularly painful because there were actually two separate bear markets in a three year span: 

  • In March 2000, there was a total drawdown of 36% over 18 months 
  • After a brief rally from January 2002 through October 2002, prices dropped another 33% 

This means you had two 30+ percent drops in basically a three-year period. This is why this time is often called “the lost decade.” The markets were flying in the 90s because of the dot-com boom. Anything with a dot-com at the end of its name was soaring in price, and people were feeling euphoric. 

I guarantee some folks tried to retire around 2000 after seeing their 401(k) grow to $2 million. They were feeling confident until they experienced a 36% drop at the beginning of 2000 and then another 33% drop in 2002. 

The Great Recession (2008-2009) 

From October 2007 through November 2008, prices dropped 51%. Then, after a brief rally at the end of 2008, from January 2009 through March 2009 (ultimately hitting bottom on March 9, 2009), prices dropped another 27%. 

I’ve talked to people who retired around this time. Thankfully, many stayed retired, which was great. But I also know people who were planning to retire in 2008, 2009, or 2010 who couldn’t. They wanted to retire but weren’t able to, whether because of fear or their portfolios dropping significantly.  

COVID-19 Sell-Off (2020)

Who would have predicted a pandemic at the beginning of 2020 and the markets dropping 30% over just five weeks? For me, this was the most dramatic sell-off because of its speed.

I remember talking to a friend who worked at Google whose coworker’s wife was a doctor. At the beginning of the pandemic, she knew what was happening and moved their 401(k) to cash.

They were right for a period—the 30% drop happened. But the crazy part was that we hit bottom on March 23, 2020, and the markets fully recovered all those losses by May, only 2 months later. The S&P 500 ended that year up 18% after being down 30% in March. 

This illustrates why I caution people against trying to time the market. You can’t predict these things, which is why you shouldn’t get too high in the highs or too low in the lows. 

The Triple Bear Market (2022) 

The 2022 downturn was different from anything I’d experienced in my career. I call it the “triple bear market” because it affected stocks, bonds, and cash: 

  • Stocks were down 25% over about nine months 
  • Bonds were down 15% due to aggressive interest rate hikes 
  • Cash was essentially returning a negative yield because interest rates on cash lagged behind inflation 

This triple threat created a challenging environment for retirees, as all three major asset classes were negatively impacted simultaneously. 

7 Strategies to Protect Against Sequence of Returns Risk

Retiring into these markets is largely uncontrollable. What you can control is having a plan for your portfolio management and withdrawal strategy to protect against sequence of returns risk. Here are seven effective approaches: 

1. Implement Guardrails (Dynamic Withdrawals) 

One of my favorite strategies is the concept of guardrails or dynamic withdrawals. Instead of sticking to a fixed percentage rate like the 4% rule, you adjust your withdrawals based on portfolio performance. 

Guardrails, made famous by Guyton and Klinger, establish decision rules for when to make adjustments to your withdrawal rate. There are four primary decision rules: 

  1. Portfolio Management Rule: Pull funds from overweight asset classes. If stocks are up, trim stocks to get back to your target allocation. If stocks are down and bonds are up, trim from bonds.
  2. Inflation Rule: Give yourself an inflation raise every year, similar to the traditional 4% rule.
  3. Capital Preservation Rule (Portfolio Rescue Rule): If your withdrawal rate increases by 20% because your portfolio value decreased, cut your spending by 10%. 
  4. Prosperity Rule: If your withdrawal rate decreases by 20% because your portfolio value increased, give yourself a 10% raise. 

By implementing these four rules, you can potentially increase your starting withdrawal percentage by 20-25% while maintaining the same or better probability of success compared to the traditional 4% rule. 

This strategy works best for those with flexibility in their spending. If you break down your expenses and find that 50% is discretionary, you could be a great candidate for guardrails because you have the capacity to cut spending during market downturns. 

2. Create a Bucket Strategy 

The bucketing concept involves having a dedicated pool of assets you tap into for withdrawals. This might include: 

  • Cash reserves 
  • CDs 
  • Short-term bonds 
  • Individual bonds like short-term treasuries 
  • Short-term bond funds or ETFs 
  • Intermediate-term bond funds 

There’s no scientific formula for how much to keep in these buckets. Some advisors recommend 1-2 years of expenses based on the average duration of bear markets. Others suggest up to 5 years of expenses, considering that the Great Recession took about five years to fully recover from the bottom in 2009. 

The right amount depends on your risk tolerance. Someone with higher risk tolerance might be comfortable with just 1-2 years in cash or cash equivalents. Someone more concerned about market volatility might prefer 5 years in a CD ladder or individual bond ladder. 

For our clients, we use a combination of money market funds, individual bonds, short-term bond ETFs, and intermediate-term bond ETFs. This typically provides liquidity for 2-5 years of expenses, depending on risk tolerance and other income sources. 

3. Categorize Your Spending (Needs, Wants, Wishes) 

Breaking your spending into three distinct categories—needs, wants, and wishes—helps identify what you can potentially cut during market downturns. 

This approach helps determine: 

  • How much of your spending is truly discretionary
  • Whether you have the flexibility to cut spending by 10% if needed 
  • How much to allocate to your bucketing strategy 

For example, I recently worked with a couple planning to retire in their 50s with a 7% initial withdrawal rate until they begin Social Security. By analyzing their spending, we determined they had enough discretionary expenses to implement guardrails successfully. 

4. Consider Partial Annuitization 

Annuitization involves turning some of your assets into a lifetime income stream. While annuities can be a controversial topic, they have a place in retirement income planning when used appropriately. 

The benefit of partial annuitization is that it puts less pressure on your volatile assets (stocks and bonds). This allows those investments to potentially grow at a higher rate because you’re withdrawing less from them while maximizing income from the annuity. 

I’ve said this before: you will not out-withdraw an annuity in your lifetime. I recently had a client with TIAA who received an annuitization schedule showing a payout rate close to 8% annually. Few advisors would recommend withdrawing 8% from a portfolio due to sequence of returns risk. 

To determine if annuitization makes sense for you: 

  1. Identify your essential spending needs. 
  2. Compare those needs to guaranteed income sources like Social Security or pensions. 
  3. If there’s a gap, consider annuitizing enough assets to fill that gap.

5. Earn Additional Income 

Similar to annuitization, earning part-time income early in retirement can significantly reduce sequence of returns risk. This strategy can be implemented reactively to a market downturn—if we enter a bear market, you could work part-time and reduce your portfolio withdrawals. 

This works best if you: 

  • Enjoyed aspects of your career
  • Are willing to work a couple of days a week 
  • Would consider consulting or a completely different field 

I’m working with a couple who initially planned to retire several years from now, but after seeing friends get sick or pass away, they want to retire sooner. The wife has a side hustle, and they’re considering renting out an ADU (additional dwelling unit) on their property through Airbnb. These two income sources could potentially allow them to retire 4-5 years earlier than planned. 

6. Adjust Your Social Security Strategy 

You may have plans to delay Social Security as long as possible to maximize lifetime benefits. However, if you’re experiencing a significant market downturn early in retirement, starting Social Security earlier than planned could reduce pressure on your portfolio. 

While this might reduce your lifetime Social Security income, it could be worth considering if it helps preserve your portfolio during a critical period. What’s helpful is that if you start Social Security before your full retirement age, you have a one-time option to stop it at your full retirement age and then delay until 70 (or as long as you want) to receive delayed credits. 

7. Implement an Asset Allocation Glide Path 

Different phases of retirement have different income needs and sources. Your investment strategy should be dynamic, not set-it-and-forget-it. 

Early in retirement, during what I call the “bridge period” (from retirement until you start Social Security), you may have no guaranteed income and might be less risk-tolerant. During this phase, you might have more in your cash bucket—perhaps that five years in cash, cash equivalents, or short-term bonds. 

Once you start Social Security, you’ll have guaranteed income covering your fixed expenses. At this point, you can potentially take on more risk because your withdrawal rate might drop significantly—from 5% to 1%, for example. This increased risk capacity could allow for a more growth-oriented portfolio allocation. 

Preparing for the Next Downturn

I don’t know when the next market downturn will be—I don’t have a crystal ball. If I did, I probably wouldn’t be working at all! But the most important thing is to have a plan in place before the next downturn occurs.

Right now, markets are looking pretty good. This is the perfect time to set your plan. We may be heading into a recession, the Fed may be too late with cutting rates, unemployment might tick up with tariffs and uncertainty—I don’t know. But set up your plan before the next downturn so you can implement it unemotionally rather than reactively. 

Be proactive instead of reactive. What are you doing to reduce your sequence of returns risk? If you’re approaching retirement or already retired, now is the time to review your strategy and ensure you’re protected against this significant risk to your retirement security. 

Remember, sequence of returns risk can devastate your retirement savings if you don’t have a protection strategy in place. The strategies outlined above—guardrails, bucketing, spending categorization, partial annuitization, part-time income, Social Security timing, and dynamic asset allocation—provide a framework for building that protection. 

By implementing these approaches before market volatility strikes, you’ll be better positioned to enjoy a secure retirement regardless of what the markets do in those crucial early years. 

At Imagine Financial Security, we help individuals over 50 with at least a million dollars saved navigate these complex retirement decisions.

If you are looking to maximize your retirement spending, minimize your lifetime tax bill, and worry less about money, you can start with our Retirement Readiness Questionnaire linked on our website at www.imaginefinancialsecurity.com. Click the “Start Now” button to learn more about our process and how we might be able to help you achieve a more confident retirement.

Not quite ready to take the questionnaire, but want helpful tips and resources? Sign up for our monthly newsletter and/or subscribe to our YouTube channel.

This is for general education purposes only and should not be considered as tax, legal or investment advice.

Ep. 96: Short-form Media is Ruining America, and Their Retirements

PFR Nation,

In this episode, I’m tackling America’s “headline culture,” how short clips and soundbites dominate not only politics, but also the way we think about retirement planning. With the tragic assassination of Charlie Kirk as a starting point, I reflect on how social media algorithms amplify the loudest, most divisive voices, while thoughtful, nuanced conversations get drowned out. When I dug into Charlie’s long-form interviews, like his sit-down with Gavin Newsom, I realized how much context gets lost and how much more common ground we really share when we go deeper.

The same thing happens in retirement planning. Viral soundbites like “Social Security is going bankrupt,” “Never pay off your mortgage,” “The 4% rule always works,” or “Financial advisors can’t beat the market, so don’t hire one” may sound convincing in 20 seconds, but they can be misleading and even harmful if you base major decisions on them.

In this episode, I break down why these headlines don’t tell the full story and what you should consider instead.

At the end of the day, just like politics, retirement requires long-form thinking. The clips may get clicks, but the deeper conversation is where the truth, and a confident retirement, really lives.

-Kevin

⁠⁠⁠Are you interested in working with me 1 on 1?⁠⁠⁠⁠⁠⁠⁠⁠ 

⁠⁠⁠⁠⁠⁠⁠⁠Click this link to fill out our Retirement Readiness Questionnaire

Connect with me here:

Or, ⁠⁠⁠⁠⁠⁠⁠⁠visit my website

This is for general education purposes only and should not be considered as tax, legal or investment advice.

Ep. 95: Can We Retire 5 Years Earlier? | Whiteboard Retirement Plan

PFR Nation,

Welcome to another “Whiteboard Retirement Plan” breakdown!

Scottie and Meredith had the perfect plan: retire at 65, sign up for Medicare, and start Social Security at 67. With nearly $1.9 million saved, everything looked like it was on track, until life threw them a curveball. After some friends their age got sick and passed away, they started asking: Why wait? Can we retire right now at 60?

In this Whiteboard Retirement Plan, Kevin Lao stress tests their plan to see if early retirement is really possible without jeopardizing their future.

You’ll hear:

  • How a five-year shift can dramatically impact retirement projections
  • The hidden risks of retiring before Medicare and Social Security kick in
  • Which levers (investment allocation, side hustle income, rental property, and more) can make early retirement realistic
  • The trade-offs between financial security and living life on your own timeline

If you’ve ever wondered whether you could retire earlier than planned without blowing up your financial security, this episode is for you.

-Kevin

⁠⁠⁠Are you interested in working with me 1 on 1?⁠⁠⁠⁠⁠⁠⁠⁠ 

⁠⁠⁠⁠⁠⁠⁠⁠Click this link to fill out our Retirement Readiness Questionnaire

Connect with me here:

Or, ⁠⁠⁠⁠⁠⁠⁠⁠visit my website

This is for general education purposes only and should not be considered as tax, legal or investment advice.

Is the 4% Rule for Retirement Still Valid in 2025?

If you’ve nerded out on retirement planning, you’ve probably heard of the 4% rule. It’s a seemingly simple guideline. Retire with a million dollars, withdraw $40,000 in your first year, adjust for inflation each year after, and you’re set for 30 years. But is this rule-of-thumb still relevant in 2025? Interestingly, Bill Bengen, the ‘father of the 4% rule’ back in the 1990s, recently released a new book called “Richer Retirement” where he suggests the 4% rule might actually be too conservative.

In this blog post, we’ll explore

  • The background of the 4% rule
  • Examine Bengen’s recent updates
  • Discuss some downsides of following this rule too rigidly
  • Provide practical approaches for your own retirement income planning.

Let’s dive in!

What is the 4 Percent Rule in Retirement?

The 4 percent rule was developed by Bill Bengen in the 1990s as a worst-case scenario approach to retirement withdrawals. Essentially, Bengen wanted to determine a safe withdrawal rate that would allow a retiree’s portfolio to last at least 30 years, even in the most challenging market conditions.

Through his research, Bengen back-tested various withdrawal rates using historical market data going back to 1926. What he discovered was fascinating. While many retirees could have started with much higher withdrawal rates, those who retired in the fall of 1968 (right before two bear markets and a period of high inflation in the 1970s and 1980s) needed to be more conservative.

The 4 percent rule works like this: In your first year of retirement, you withdraw 4% of your total portfolio. For example, if you have $1 million saved, your first-year withdrawal would be $40,000. In subsequent years, you adjust that amount for inflation. If inflation runs at 3% after your first year, you’d add $1,200 to your withdrawal, taking out $41,200 in year two, and so on throughout retirement.

This approach was designed as a worst-case scenario. In Bengen’s research, a portfolio with this withdrawal strategy would have lasted at least 30 years, even for those unfortunate 1968 retirees who faced particularly challenging economic conditions.

How the 4 Percent Rule Has Evolved: Bengen’s New Research

In his new book “Richer Retirement,” Bill Bengen has updated his research with some interesting findings. One key change is that he expanded the asset classes in his analysis.

The original 4% rule study used a simple portfolio allocation:

  • 50% in S&P 500 (large-cap US stocks)
  • 50% in intermediate treasury bonds (either 5-year or 10-year)

In his updated research, Bengen added several additional asset classes:

  • Mid-cap stocks
  • Small-cap stocks
  • Micro-cap stocks
  • International stocks
  • Additional bond types

The results? That same 1968 retiree could have actually started with a 4.7% withdrawal rate and still had their portfolio last beyond 30 years. 

Even more interesting, in recent interviews promoting his book, Bengen has suggested that withdrawal rates of 5.25% or even 5.5% could be reasonable starting points for today’s retirees. That’s a substantial increase from the original 4% guideline.

Why the 4 Percent Rule Has Limitations

While the 4 percent rule provides a helpful benchmark, there are several important limitations to consider before applying it to your own retirement planning:

It Ignores Other Income Sources

The 4 percent rule assumes your investment portfolio is your only source of retirement income. In reality, most retirees have multiple income streams, with Social Security being the most common.

For example, if you retire at 60 but delay Social Security until 70, you might need to rely more heavily on your portfolio during that 10-year “bridge period.” Your withdrawal rate might be higher initially (perhaps 6-7%). Once Social Security kicks in, your portfolio withdrawals could drop significantly.

Let’s say you need $100,000 annually and have $1.5 million saved. That’s a 6.67% withdrawal rate—well above the 4% guideline. However, if Social Security later provides $50,000 annually, you’d only need to withdraw $50,000 from your portfolio. Your withdrawal rate drops to just 3.33% (assuming your portfolio hasn’t depleted).

It Doesn’t Account for Tax Efficiency

The 4 percent rule assumes all your retirement assets are in tax-deferred accounts like 401(k)s or traditional IRAs. While this is common, many retirees today have a mix of account types:

  • Tax-deferred accounts (401(k)s, traditional IRAs)
  • Tax-free accounts (Roth IRAs, HSAs)
  • Taxable brokerage accounts

By strategically withdrawing from different account types based on tax considerations, you can potentially increase your effective withdrawal rate well above 4% while maintaining the same after-tax income.

It’s Based on Retirement Spending Phases

The 4 percent rule assumes consistent spending throughout retirement, adjusted only for inflation. However, retirement spending typically follows three distinct phases:

  1. Go-Go Years: The early, active phase of retirement with higher discretionary spending on travel, hobbies, and bucket-list experiences.
  2. Slow-Go Years: The middle phase where activity levels and spending naturally decrease.
  3. No-Go Years: The later phase with limited mobility where spending on discretionary items decreases significantly.

A Morningstar study found that retirees’ spending typically lags inflation by about 1% per year. This means your spending power might naturally decrease over time. This pattern could allow for higher initial withdrawal rates that gradually decrease.

It Uses a Conservative Asset Allocation

The original 4% rule was based on a 50/50 stock/bond allocation, which Bengen considered the minimum acceptable stock percentage. In his research, portfolios with 75% stocks and 25% bonds often supported initial withdrawal rates of 5%, 6%, or even higher.

Your risk tolerance and capacity should guide your asset allocation. If you’re comfortable with more equity exposure (60/40 or 75/25), you might safely support a higher withdrawal rate.

It’s Based on Worst-Case Scenarios

Perhaps most importantly, the 4 percent rule is based on the worst retirement timing in modern history. The average safe withdrawal rate across all the historical periods Bengen studied was actually 7%—not 4%.

This means most retirees following the 4% rule not only preserved their principal but significantly increased their wealth throughout retirement. While having a backup plan for worst-case scenarios is prudent, planning your entire retirement around the worst possible outcome might lead to unnecessary sacrifice during your go-go years.

Practical Approaches to Retirement Income Planning

So how should you approach retirement income planning given these insights? Here are some practical strategies:

Use the 4.7% Rule as a Benchmark, Not a Rule

The updated 4.7% guideline should be viewed as a starting point, not a rigid rule. Compare your planned initial withdrawal rate to this benchmark. If you’re significantly higher (like 10%), that might be a red flag. But if you’re at 5.5-6% with Social Security starting in a few years, you’re likely on solid ground.

Optimize Your Tax Efficiency

Consider the timing of your distributions from different account types. For example, the period between retirement and age 75 (when Required Minimum Distributions begin) presents a potential “Roth conversion window” where you might be in lower tax brackets.

Strategically converting some tax-deferred assets to Roth during these years can potentially reduce your lifetime tax bill and enhance your legacy if that’s important to you.

Balance Risk Tolerance with Risk Capacity

Determine both how much risk you need to take (risk capacity) and how much risk you’re comfortable taking (risk tolerance). If your retirement is well-funded, you might not need to take on as much market risk, even if that means a slightly lower withdrawal rate.

Consider your different “buckets” of money and their time horizons:

  • Near-term spending money (more conservative allocation)
  • Mid-term money (moderate allocation)
  • Long-term/legacy money (more aggressive allocation)

Just be careful about overloading bonds in taxable accounts, as this can create tax drag on your returns.

Consider a Guardrails Approach

The “guardrails” strategy, developed by Guyton and Klinger, offers more flexibility than the static 4% rule. It allows for a higher initial withdrawal rate (perhaps 5-5.5%) with rules for when to reduce spending if your portfolio performs poorly or increase spending if it performs well.

This approach can be particularly valuable if you’re retiring early with a longer time horizon. It can also help if you’re borderline funded but don’t want to sacrifice your go-go years.

Develop a Long-Term Care Plan

Long-term care costs can derail even the best retirement income plan. About 70% of retirees will need some form of care in their later years. Without a specific plan for these costs, many retirees underspend throughout retirement out of fear.

Strategies you may consider include:

  • Insurance
  • Self-funding
  • A combination approach

Having a dedicated strategy for potential care needs is essential. It can also give you more confidence to spend and enjoy your early retirement years.

Is the 4% Rule Dead?

So, is the 4 percent rule outdated retirement planning advice? Not exactly. It remains a useful benchmark. The better question might be:

Should we make it the 7% rule, given that was the average experience across all historical periods?

The answer depends on your personal circumstances. Starting with a higher withdrawal rate early in retirement (perhaps 6-7%) and then reducing it once Social Security begins could be a reasonable approach for many retirees.

Remember that no one can predict the future. The key is having a disciplined, unemotional, and repeatable process for managing your retirement income—not just at the beginning of retirement, but throughout your retirement journey.

Final Thoughts

Retirement planning isn’t one-size-fits-all. While the 4% rule retirement strategy provides a helpful starting point, your personal retirement income plan should consider your unique circumstances, including:

  • The timing of different income sources
  • Tax efficiency across various account types
  • Your spending patterns and priorities
  • Your risk tolerance and capacity
  • Your legacy goals
  • Your long-term care strategy

By taking a more nuanced approach to retirement income planning, you can potentially enjoy a richer retirement without sacrificing long-term security.

Remember, the goal isn’t to die with the biggest possible portfolio—it’s to use your resources to live your best life while ensuring you don’t outlive your money. With thoughtful planning and regular reassessment, you can strike that balance and enjoy the retirement you’ve worked so hard to achieve.

This is for general education purposes only and should not be considered as tax, legal or investment advice. At Imagine Financial Security, we help individuals over 50 with at least a million dollars saved navigate these complex retirement decisions.

If you are looking to maximize your retirement spending, minimize your lifetime tax bill, and worry less about money, you can start with our Retirement Readiness Questionnaire linked on our website at www.imaginefinancialsecurity.com. Click the “Start Now” button to learn more about our process and how we might be able to help you achieve a more confident retirement.

Not quite ready to take the questionnaire, but want helpful tips and resources? Sign up for our monthly newsletter and/or subscribe to our YouTube channel.

Ep. 94: Reducing Sequence of Returns Risk

PFR Nation,

As you approach retirement, or even when you are in the beginning phase of retirement, there is this natural feeling of concern about market uncertainty. After all, the market can turn south in a heartbeat, potentially even leading into a recession. Or worse, a prolonged recession. This term is also known as “Sequence of Returns Risk.” It’s not about your long-term average return, it’s about the ‘sequence’ those returns are generated.

I’ve been stress testing different rates of withdrawal with different starting periods. And the ‘Lost Decade’ of the 2000s is a perfect example of why sequence of returns is so important for retirees to protect against.

In this episode, I’ll highlight some of the major downturns since the 2000s. Then, I’ll talk about some real strategies that you can implement as you protect against sequence of returns risk. I hope you find this one useful!

And let me know what YOU plan to do to hedge against this risk. Also, make sure to share this episode with someone who is also approaching retirement, or who has recently retired! I’m sure they’ll also find it useful.

Thanks for tuning in.

Kevin

Key Topics:

• What Sequence of Returns Risk really means and why it matters more than long-term average returns.

• How the “Lost Decade” of the 2000s demonstrates the dangers of poor return sequencing.

• Practical strategies to protect your retirement portfolio from early losses.

• Tips for stress-testing withdrawal rates and planning for different market scenarios.

⁠⁠⁠Are you interested in working with me 1 on 1?⁠⁠⁠⁠⁠⁠⁠⁠ 

⁠⁠⁠⁠⁠⁠⁠⁠Click this link to fill out our Retirement Readiness Questionnaire

Connect with me here:

Or, ⁠⁠⁠⁠⁠⁠⁠⁠visit my website

This is for general education purposes only and should not be considered as tax, legal or investment advice.

Ep. 93: 10 Pieces of Financial Wisdom for Your Adult Children

PFR Nation,

Many of you have adult children or loved ones you hope will benefit from your financial success. But how confident are you in their financial skills? Will they be good stewards of the wealth you leave behind? Even if you don’t plan to leave a fortune, your careful retirement planning might still create a sizable legacy.

I just celebrated 17 years in financial services on 8/28! It’s been a journey full of highs and lows, shaping my perspective on money and life itself. To mark the milestone, I’m sharing 10 key lessons I’ve learned as a financial advisor, entrepreneur, and content creator. My hope is that these insights can help you in your conversations with your adult children or beneficiaries!

I hope you find it useful!

~Kevin

⁠⁠⁠Are you interested in working with me 1 on 1?⁠⁠⁠⁠⁠⁠⁠⁠ 

⁠⁠⁠⁠⁠⁠⁠⁠Click this link to fill out our Retirement Readiness Questionnaire

Connect with me here:

Or, ⁠⁠⁠⁠⁠⁠⁠⁠visit my website

This is for general education purposes only and should not be considered as tax, legal or investment advice.

Bear Market Preparation: 14 Retirement Planning Moves to Protect Your Wealth

The markets have recovered all of the losses from “Liberation Day,” AND SOME, so far in 2025.  Many investors have stopped worrying about tariffs, and are now looking at a high likelihood of the Fed cutting interest rates at their next meeting in September.

However, it’s crucial to begin preparing for the next bear market or recession before they actually happen. You’d rather be in proactive mode, rather than reactive mode!  In this article, I’ll discuss 14 retirement planning moves to help you prepare for the next bear market because it’s not a question of if, but when.

What Is a Bear Market?

Before diving into preparation strategies, let’s clarify what a bear market actually means. A bear market is defined by a decline of 20% or more in one of the major stock indexes over at least two months. A correction, on the other hand, is a 10% decline from previous highs.

Since 1964, the S&P 500 has experienced 27 corrections. In eight of those 27 instances (about 30%), the correction led to a bear market. Typically, bear markets last about 10 months on average, though some have lasted significantly longer.

Some notable bear markets include:

  • The Great Depression (1929-1932): The Dow dropped 86%
  • The Global Financial Crisis (2008): The S&P 500 declined by about 56%
  • The Dot-com Bubble (2001-2002): The S&P 500 fell about 50%, while the NASDAQ dropped almost 78%
  • The COVID-19 Pandemic (2020): The S&P 500 declined about 34% but fully recovered two months later
  • The Triple Bear Market (2022):  Stocks, bonds and cash were all in bear market territory as of June of 2022.  It lasted about 9 months, but the inflation effects are still lingering. 

Bear markets are part of the economic cycle. We experience booms and busts, expansions and contractions, peaks and troughs. With current concerns about tariffs, geopolitical conflicts, inflation, and interest rates, there’s significant uncertainty in the markets.

Now, let’s explore 14 strategies to prepare for the next bear market.

1. Prepare Your Mindset

Bear market preparation begins with your mindset. Bear markets are a normal part of investing. You didn’t accumulate seven figures by being scared of investing. You took on risk to achieve your desired returns.

The challenge is that as you get closer to retirement, volatility becomes more concerning because you’re transitioning from accumulation to needing to live on your portfolio. This is completely normal.

Remember that bear markets happen on average about every five years. Even when you retire, you’ll need to keep some money invested in the stock market to keep pace with inflation. If you have a 30-year retirement horizon, you can expect to live through approximately six bear markets during retirement.

2. Prepare Your Investment Portfolio

One of the most critical aspects of preparing for a bear market is having a properly structured investment portfolio. It’s easier to think about this during periods of volatility, but it’s even more important to implement when things are going well.

Think back to 2023 and 2024, when the S&P 500 delivered back-to-back returns exceeding 20%. After Trump won the election in late 2024, there was almost a euphoria in the markets with expectations of reduced regulations, tax cuts, and increased domestic manufacturing. This “Trump bump” created a situation where things were running hot—a common occurrence toward the end of a boom cycle.

Instead of riding that wave based on emotion, a disciplined, unemotional, repeatable process of rebalancing can prevent you from becoming overexposed to risk. This means:

  • Having specific targets for each asset class
  • Trimming winners and taking gains off the table
  • Buying underweight positions that might be underperforming

You can’t magically implement this in the middle of a bear market. You need to enter each year with a defined investment policy statement and strategy for each account—your taxable brokerage account, traditional IRA, 401(k), and Roth accounts.

For example, if your S&P 500 allocation increases significantly due to strong performance, consider reallocating some of those gains to areas that may have underperformed, such as fixed income or cash. This disciplined approach helps prevent emotional decisions when markets turn, which typically happens quickly.

3. Build Your War Chest

Investing in a down market requires having cash available. Building up your “war chest” is crucial for both protection and opportunity.

If we enter a bear market, there’s a decent chance we’re already in a recession or heading into one. The market is a leading indicator, typically declining before economic data confirms a recession. Having cash on hand helps if you lose your job or face reduced income during economic downturns.

But if you’re fortunate enough to keep your job during a bear market, cash becomes king for finding buying opportunities. As Warren Buffett famously said, “Be fearful when others are greedy and be greedy when others are fearful.”

Consider this eye-opening statistic: 56% of the best days in the S&P 500 occur during bear markets. Another 32% happen in the first two months of a bull market. That means 88% of the best market days happen when most people aren’t feeling optimistic about investing.

This war chest could be:

  • Cash within your investment portfolio
  • Cash alternatives in your investment portfolio
  • Increased contributions to retirement accounts during downturns
  • Front-loading contributions to take advantage of buying opportunities

It won’t feel natural to add money when markets are down. Imagine being told to add more money to your portfolio during the pandemic, when it had already dropped 30-40%. Most people want to take money out, not put more in. But that’s precisely when the greatest opportunities arise.

4. Plan Your Retirement Cash Flow Sources

Having a plan for where your retirement cash flows will come from is essential during market volatility. Let’s use a simple example:

If you have a $1 million portfolio with a 60/40 split ($600,000 in equities and $400,000 in fixed income), and you need $40,000 annually (a 4% withdrawal rate), you effectively have 10 years of income in fixed income without touching your stock portfolio.

Given that bear markets typically last about 10 months, with the longest in our lifetime being around five years, having 10 years of income in fixed income should provide significant peace of mind.

Additionally, if your portfolio generates income through interest and dividends—let’s say 2.5% overall—and your withdrawal rate is 4%, you only need to rely on capital sales for about 1.5% of your portfolio. That’s manageable even during market downturns.

During strong markets, like 2024, you can generate income by trimming gains from equities. When markets turn, as in early 2025, you can draw from fixed income or cash alternatives while waiting for stocks to recover.

5. Optimize Your Social Security Strategy

Social security planning is a critical component of retirement in a bear market. The timing of when to claim Social Security can significantly impact your retirement income floor.

If you delay Social Security until full retirement age or age 70, you’ll have a higher benefit base that will also receive cost-of-living adjustments. This creates a higher guaranteed income floor in retirement, which provides peace of mind during market volatility.

For example, if 60% of your cash flow needs come from fixed income sources like Social Security, you won’t need to rely as heavily on your investment portfolio during volatile periods.

If you’ve already retired and planned to delay Social Security until 70, but then face a bear market or recession, you have options. You could elect to start benefits earlier and then:

  1. Continue them indefinitely, or
  2. Stop them at full retirement age and then preserve delayed retirement credits until age 70

This flexibility allows you to adapt your strategy based on market conditions while still maintaining long-term income security.

6. Consider Part-Time Work

While not everyone’s favorite suggestion, considering part-time work during market downturns can be a valuable option. The goal in retirement is for work to be optional, not mandatory. However, even if you don’t mathematically need to work to preserve your portfolio, it might provide peace of mind.

Instead of drawing down your portfolio during a bear market or recession, finding fulfilling part-time work or a side hustle can reduce your withdrawal rate and put less pressure on your investments while they recover.

7. Evaluate Roth Conversion Opportunities

Roth conversions during market downturns present an interesting opportunity. When converting from pre-tax to Roth accounts, you pay taxes on the converted amount. If market values are down, you can convert the same number of shares at a lower tax cost.

If you believe in the long-term prospects of your investments, converting when valuations are down allows the eventual recovery to happen in the tax-free Roth environment rather than in your tax-deferred accounts.

The challenge is timing—you want to convert at the right moment. If you convert and the market continues to decline, you’ve paid taxes on a higher value. Typically, Roth conversions are best done toward the end of the year when you have a clearer picture of your annual income and tax situation.

8. Consider Gifting Securities at a Discount

Similar to Roth conversions, gifting stock or securities during market downturns can be advantageous if you regularly gift to family members or irrevocable trusts. Instead of gifting securities at higher values, you can gift them when values are down, allowing for a lower gift amount.

The eventual appreciation will be on the recipient’s balance sheet rather than yours. The value of this strategy depends on how much you’re gifting and the long-term outlook for the investments.

9. Implement Tax Loss Harvesting

Tax loss harvesting is a powerful strategy during market downturns. This involves selling investments at a loss in a taxable brokerage account (not retirement accounts like IRAs or 401(k)s) to realize the loss for tax purposes.

These realized losses can offset capital gains in the current year or be carried forward to offset gains in future years. If you have no capital gains, you can deduct up to $3,000 against ordinary income annually.

The key is to replace the sold security with something similar immediately but not “substantially identical” to maintain your market exposure. For example:

  • You can’t sell Apple and buy Apple back (that’s substantially identical)
  • You could sell Apple and buy Microsoft (not substantially identical)
  • For funds, you might switch from a Fidelity S&P 500 fund to a Vanguard Large Cap stock fund (also not substantially identical).

The “wash sale rule” prevents you from claiming the loss if you buy the same or substantially identical security within 30 days before or after the sale.

During the 2022 bear market, our clients built up significant tax-loss “war chests” that they’re still using to offset gains or reduce ordinary income.

10. Create Guaranteed Income with Fixed Annuities

Leveraging annuities to create guaranteed income can provide significant psychological benefits during market volatility. Social Security is essentially an annuity, but additional guaranteed income sources can enhance your retirement security.

The higher your guaranteed income floor, the more peace of mind you’ll have when markets are volatile. If guaranteed sources cover 60-70% of your income needs, short-term market fluctuations become less concerning.

For example, one client recently activated an annuity income stream with a 7.6% payout rate—significantly higher than what would be prudent to withdraw from an investment portfolio. This guaranteed income, combined with Social Security, covers about 70% of her cash flow needs, providing tremendous peace of mind during market volatility.

11. Leverage Cash Value Life Insurance

If you already have cash value life insurance, it can serve as a valuable resource during market downturns. It takes years or decades to build significant cash value, but once established, it can be a stable asset during volatility.

Unlike stocks or bonds, cash value in traditional life insurance policies typically doesn’t decrease in value during market downturns. You can access this cash through withdrawals, partial surrenders, or policy loans while waiting for markets to recover.

During the March 2020 market bottom, some investors used policy loans from their life insurance to invest in the market at discounted prices, capitalizing on the opportunity while maintaining their existing investments. Or if retired, they used that cash value as income instead of tapping into their stock allocations.

12. Consider Home Equity Options

Your home equity can serve as a last line of defense during severe market downturns. Options include:

  • Home Equity Line of Credit (HELOC): Opening a HELOC before things get bad provides access to a cash reserve that you don’t have to use unless necessary. While there are interest costs if you tap into it, having $100,000-$200,000 available can provide significant peace of mind.
  • Reverse Mortgage (if over 62): This can create a cash bucket similar to a HELOC without requiring monthly payments.

Home equity is often an underutilized asset class. Creating liquidity within your home equity can provide additional security if stock and bond markets experience severe downturns.

13. Trim Concentrated Stock Positions

Market downturns can present good opportunities to reduce concentrated stock positions. Many clients have significant concentrations in individual stocks, often from employer stock plans. These positions can be difficult to sell for two reasons:

  1. Behavioral attachment: The stock helped build their wealth, and they’re emotionally connected to it.
  2. Tax consequences: Selling may trigger significant capital gains taxes.

During market volatility, stock prices decline, making the tax consequences less painful. A position that might have generated $100,000 in taxes during a bull market might only generate $50,000 in taxes after a decline.

For example, a client with 45% of their portfolio in Microsoft stock is using the recent volatility to reduce their concentration to 30% with minimal capital gains due to the market decline.

If you have concentrated positions (generally defined as over 5% exposure to a single stock), market downturns can be an opportune time to rebalance toward a more diversified allocation with a lower tax bill.

14. Do Nothing

Sometimes, the best strategy during market volatility is to do nothing. Acting on emotion or making rash decisions during volatile periods can significantly damage your long-term plan.

If you’re uncomfortable with the 13 strategies mentioned above, it might be better to simply wait it out rather than make emotional decisions—unless you completely lack a financial planning strategy to begin with. In that case, consulting with a professional advisor would be beneficial.

Doing nothing is certainly better than abandoning a well-diversified, thoughtful investment strategy due to short-term market movements.

Final Thoughts on Bear Market Preparation

I don’t want to dismiss anyone’s emotions during volatile markets. Transitioning from working to retirement is already emotionally charged, with concerns about aging, health, and this next chapter of life. Market volatility adds another layer of stress.

However, having a trusted partner to lean on during these times can make all the difference. Someone who can coach you to stick to a long-term, disciplined strategy can help you navigate market turbulence with confidence.

Remember, bear markets are not a function of if, but when. With proper bear market preparation, you can not only protect your retirement savings but also potentially capitalize on opportunities that arise during market downturns.

As market volatility continues to make headlines, there’s no better time than now to evaluate which of these bear market preparation strategies align with your retirement goals and take decisive action to protect the financial future you’ve worked so hard to build.

This is for general education purposes only and should not be considered as tax, legal or investment advice. At Imagine Financial Security, we help individuals over 50 with at least a million dollars saved navigate these complex retirement decisions.

If you are looking to maximize your retirement spending, minimize your lifetime tax bill, and worry less about money, you can start with our Retirement Readiness Questionnaire linked on our website at www.imaginefinancialsecurity.com. Click the “Start Now” button to learn more about our process and how we might be able to help you achieve a more confident retirement.

Not quite ready to take the questionnaire, but want helpful tips and resources? Sign up for our monthly newsletter and/or subscribe to our YouTube channel.

Ep. 92: Should The 4% Rule Be The 7% Rule?

If you have been a podcast listener for a while, you know I have strong feelings about the “4% Rule.” Well, the father of the 4% Rule, Bill Bengen, just released a new book where he admits that 4% is probably too low. In this episode, we’ll briefly touch on the history of the 4% rule, as well as the findings in his new book. But more importantly, we’ll discuss the downsides of actually using the 4% rule in real retirement planning and touch on some key planning opportunities for YOU (PFR Nation) to consider instead. 

I hope you all find this one helpful! 

Let me know what YOU think of the 4% Rule!

-Kevin

Are you interested in working with me 1 on 1?⁠⁠⁠⁠⁠⁠⁠⁠ 

⁠⁠⁠⁠⁠⁠⁠⁠Click this link to fill out our Retirement Readiness Questionnaire

Connect with me here:

Or, ⁠⁠⁠⁠⁠⁠⁠⁠visit my website

This is for general education purposes only and should not be considered as tax, legal or investment advice.

91: What Can We Learn From Gene Hackman’s Estate Planning Nightmare?

PFR Nation,

Legendary actor Gene Hackman passed away earlier this year. Some of the details about his estate plan have been made public due to the probate process. While I don’t believe any of us have an $80 million estate, there are some important lessons we can all take away from this estate planning nightmare. Especially if you are part of a blended family (children from a previous relationship or marriage). I hope you all find this useful.

Make sure to check out the links below for some of the blended family content I’ve created in the past from the podcast and company blog.

And finally, make sure to email me at kevin@imaginefinancialsecurity.com if you would like a copy of the e-book I am finishing up, “Planning For Retirement With A Blended Family.”

Thanks for tuning in to the show and making sure to follow the podcast and subscribe to our YouTube channel for weekly retirement-related content for PFR Nation!

-Kevin

Resources Mentioned:

  • Blended Families – You Need a Long-term Care Plan! (blog post)
  • How to divide assets in a blended family (blog post)
  • 4 Retirement and Estate Planning Strategies for Blended Families in Florida (blog post)
  • Blending and Building Wealth in a Blended Family (w/ Tim and Alexis Woodward @ Blend Wealth) (podcast episode)
  • Wealth Protection And Transfer in a Blended Family (w/ Tim and Alexis Woodward @ Blend Wealth) (podcast episode)

– Kevin

Are you interested in working with me 1 on 1?⁠⁠⁠⁠⁠⁠⁠⁠ 

⁠⁠⁠⁠⁠⁠⁠⁠Click this link to fill out our Retirement Readiness Questionnaire

Connect with me here:

Or, ⁠⁠⁠⁠⁠⁠⁠⁠visit my website

This is for general education purposes only and should not be considered as tax, legal or investment advice.

6 Retirement Planning Strategies for When You’re Feeling Behind

Are you feeling a little bit behind regarding your retirement plans? Well, you are not alone. In fact, over 57% of Americans today are feeling behind relative to their goals for retirement. In this blog post, we’re going to talk about six retirement planning strategies that may improve your potential outcomes for a successful retirement.

Retirement Planning: Why 57% of Americans Feel Behind

I’m sure each participant in this study has their own story.  However, the fact is that we live in a world of comparing ourselves to others, unfortunately.  Therefore, regardless of how well you’ve saved and invested up to this point, it’s completely normal to feel “behind.”  With that said, some of you truly are behind. Whether you were focused on

  • Building your careers or businesses
  • Raising children (which are VERY expensive)
  • Paying for private school or college
  • Caring for aging parents

There are countless reasons as to why you might be behind. 

However, implementing effective retirement planning strategies can significantly improve your financial outlook, even if you’re starting late. The transition from active income to passive income can be scary for many people. Additionally, it’s the fear of spending down the portfolio and worrying about uncertain events down the road that leads to serious anxiety as you approach quitting your day job.

At the same time, many folks tend to sacrifice those early years of retirement, what I like to call the “Go-Go Years.” This period of time is when you’re healthy and physically able to do the things you may want to do – traveling the world or spending precious time with your grandkids, whatever that might be.

I believe there must be a healthy dose of cautious optimism to implement a successful retirement plan. 

Let’s dive into six strategies that can help improve your retirement outcomes, give you greater peace of mind, and provide greater confidence as you approach this next chapter.

Strategy 1: Increase Savings Rate and Maximize Contributions

Let’s start with the low-hanging fruit.  Saving more is something primarily in our control, and certainly can move the needle if you have a few years left until you plan to retire.  Catch-up contributions are powerful retirement savings strategies for those over 50 who need to accelerate their nest egg growth. If you’re over 50, there are catch-up retirement plan contributions available for 401(k) plans as well as individual retirement accounts. Once you hit 55, there’s also a catch-up for Health Savings Accounts (HSAs).

401(k) Contribution Limits

If you’re over 50, you can contribute $31,000 into a 401(k) plan for employee contributions in 2025 (this includes the $7,500 catch-up for ages 50+). That’s important to note because I’ve seen people make this mistake before. They say, “I’m putting in $20,000 and my employer matches me $11,000, so I’m maxing my 401(k).”

That’s actually not true. The $31,000 is only related to employee contributions. Employer contributions are on top of that.

The total contribution limit in 2025 for ALL sources (employee, employer, and voluntary after-tax) is $77,500 for 2025.  This includes the $7,500 age 50+ catch-up contribution.

This applies to 401(k)s, 403(b)s, Thrift Savings Plans if you’re in the federal government, and 457 plans if you have one available.

Super Catch-Up Contributions

Thanks to the Secure Act 2.0, there’s now a “super catch-up contribution” available. Instead of the $7,500 extra that you can put into these plans, you can put in $11,250 if you’ve turned 60, 61, 62, or 63 in 2025 and beyond. That’s an additional $3,750 on top of the regular catch-up.

IRA Catch-Up Contributions

An Individual Retirement Account has a maximum contribution of $7,000 per year, whether it’s a Traditional or Roth account. If you put $3,500 into a traditional IRA, you can only put $3,500 into a Roth IRA.

If you’re over 50, you get an extra $1,000 catch-up, bringing your total to $8,000.

There are income thresholds you need to consider if you are looking to contribute to a Roth IRA or make a tax-deductible contribution into a Traditional IRA.  So, make sure to consult with your tax professional and financial advisor to confirm these limits.

Mega After-Tax Contributions

Many employers today are adopting what’s called the Mega After-tax Roth Contribution in their 401(k) plans. This allows for additional contributions beyond the employee and employer amounts, up to the total limit of $77,500 (for folks over 50).

Example:

If you’re putting in the max employee contribution of $31,000 and your employer matches $10,000, you’re at $41,000. You could potentially put up to an additional $36,500 into the 401(k) plan on an after-tax basis. 

The key factor, however, is making sure that after-tax contribution can be converted to Roth immediately!  This can often be done within the 401 (k) or to your Roth IRA.  Additionally, your plan administrators will calculate the exact amount allowed to the after-tax side, and this will be spelled out in your benefits details. 

This essentially allows a highly compensated employee to contribute tens of thousands of dollars into the Roth portion of their assets without worrying about the income phaseouts associated with Roth IRA contributions. 

HSA Contributions

HSAs are my favorite investment account for retirement because you get the trifecta tax benefit:

  • Pre-tax contributions (fully deductible regardless of income)
  • Tax-free growth
  • Tax-free distributions (as long as they’re used for qualified medical expenses)

Once you turn 55, you get an extra $1,000 catch-up. In 2025, for individual plans, you can contribute $4,300 plus $1,000, totaling $5,300. For family plans, it’s $8,550 plus $1,000, totaling $9,550.

Unlike a Flexible Spending Account (FSA), these accounts do not need to be emptied on an annual basis.  Therefore, if you can pay medical costs out of pocket for the year, it’s wise to allow the triple tax benefits to work in your favor until you fire your boss and retire.  This will serve as a nice tax-free income during retirement, or even perhaps serve as a self-funding mechanism for long-term care costs. 

Just make sure you spend these accounts during your lifetime, as any amounts left to children will be a tax bomb for them!

Strategy 2: Working Longer to Improve Retirement Outcomes

Working longer probably makes more of an impact than any of these other strategies in the long term. Delaying retirement by just one, two, or three years can significantly improve your financial outlook.

This doesn’t have to be in your current job. Maybe you’re a physician, working an intense tech job, or in a physically demanding blue-collar position that you can’t continue much longer. You could retire from your current role but transition to something else, perhaps even part-time.

Having one or both spouses doing something part-time to earn extra income can help bridge the gap years—the period between when you retire and when you start taking guaranteed income sources like Social Security or pension income. Those gap years can be stressful if you have no income coming in and are relying entirely on your portfolio, especially during times of market volatility.

The extra income allows you to delay portfolio withdrawals or reduce them, maximizing your Social Security benefits and allowing your tax-deferred and tax-free savings to continue growing.

Strategy 3: Review Your Spending Assumptions and Retirement Budget

Many people assume they’ll need their current spending level, adjusted for inflation, throughout their entire retirement. But retirement spending typically occurs in three distinct phases:

  1. The Go-Go Years: When you’re active and traveling
  2. The Slow-Go Years: When you start to slow down
  3. The No-Go Years: When mobility becomes more limited

In the go-go years, your spending may even go up compared to your working years.  After all, every day is Saturday. But these years probably won’t last forever. Therefore, it likely doesn’t make sense to assume that level of spending forever.

There is an argument that healthcare costs might be lower at the beginning of retirement, while discretionary expenses are higher. Then, over time, discretionary spending decreases while healthcare costs rise, particularly for long-term care. If you have unexpected healthcare costs later in retirement, you want to be prepared to maintain your independence and dignity without relying on family members.

This is where long-term care insurance can be valuable. It eliminates the potential risk of needing to spend down your portfolio for care, which could impact your spouse’s financial security, especially considering women typically outlive men.

Studies have shown that retirees lag inflation by about 1% a year over time. If general inflation is 2%, your experienced inflation might only be 1% because many of your expenses are fixed. Your mortgage might be paid off, or your property taxes might be homesteaded and not increase at the full rate of inflation.  The inflation assumption might be one of the most critical variables when you are mapping out your spending needs and the viability of retirement success.

Strategy 4: Finding the Right Asset Allocation for Retirement Investing

Adjusting your retirement investing approach as you age is crucial for balancing growth potential with risk management. One of the things you can control is your long-term asset allocation. The higher exposure you have to equities (stocks), the higher long-term rate of return you should expect, though it’s not guaranteed.

One of the biggest mistakes I see retirees make is getting too conservative too early in retirement. They reach 60 or 65 and think, “I’m done accumulating, now I’m transitioning to the distribution phase. I was 70% in the stock market, I’m going to go down to 20% or 25%.”

That’s a no-no, especially if you’re borderline in terms of being funded or not well-funded. The higher expected rate of return you have in your portfolio, the more likely you are to achieve your long-term goals.

However, there’s a fine line. If you go 100% in stocks and retire into a market downturn, that’s not good either, because you’ll have to sell stocks at the wrong time.

Bill Bengen’s 4% rule assumed an asset allocation of 50% equities (S&P 500) and 50% in government bonds (10-year Treasury). However, he suggested that as the minimum equity exposure, but actually leaned toward 75% in equities if you have the risk tolerance.

If you’re a bit behind for retirement, you don’t have the capacity to get ultra-conservative. Going too conservative brings other risks into play:

  • Interest rate risk
  • Inflation risk
  • Longevity risk.

Consider a bucketing strategy where you align your asset allocation with different accounts:

  • More conservative investments in your taxable accounts that you’ll tap first
  • Moderate risk in your tax-deferred accounts
  • More aggressive investments in your Roth accounts that you’ll access later

Strategy 5: Consider Relocating for Financial Benefits

Considering relocation could be a strategy to boost your chances of success. This retirement planning strategy can be particularly effective if you’re moving from a high-cost-of-living area to a lower-cost one.

For example, suppose you’re selling a house in New York worth $1.2 million and moving to Florida or Tennessee. In that case, you might be able to buy a comparable or better home for $700,000, leaving you with $400,000 to invest (after accounting for closing costs and taxes).

This cost-of-living arbitrage can significantly improve your retirement outlook. However, it’s essential to consider more than just the financial aspects:

  • Where are your adult children and grandkids?
  • Where is your circle of friends?
  • What about healthcare facilities and doctors?
  • Is the infrastructure (roads, schools, hospitals) adequate?

Before making a permanent move, consider renting for six months or a year to make sure the location is right for you.

Strategy 6: Utilize Home Equity

Don’t be afraid to use your home equity in retirement. I often see folks whose largest asset is their paid-off home, worth $750,000, $1 million, or more. They don’t want to sell it because they like it and want to age in place there.

However, if that home equity is added to their financial legacy upon passing, and it impacts their standard of living during retirement, they may have missed out on valuable experiences, opportunities to gift to their children, travel, or access to better healthcare.

One way to tap into home equity without selling is through a reverse mortgage, available once you turn 62. This gives you access to your home equity as an emergency fund, line of credit, or even income payments for life. It will reduce the equity you leave behind, but you can age in place and won’t have to pay back the loan during your lifetime.

Home equity can also be a great source for funding long-term care if you can’t buy insurance due to pre-existing conditions. Using home equity for this purpose can free up your retirement assets for lifestyle expenses rather than reserving them for potential care needs or financial legacy goals.

Additional Retirement Planning Strategies to Consider

Maximize Social Security Benefits

If you’re feeling a bit underfunded, maximizing your Social Security benefit can do wonders. Delaying until 70 (the latest retirement age) or at least until full retirement age gives you a higher baseline that adjusts with inflation long-term.

Consider Life Annuities

A life annuity that continues paying for as long as you live can provide peace of mind, especially if you’re concerned about market downturns affecting your portfolio.

Rethink Roth Conversions

Roth conversions may not be right for you if you’re behind on retirement savings. They require front-loading taxes early on, which could impact your breakeven long-term, especially with an underfunded plan. You can’t convert your way to a successful retirement.

Implement Tax-Efficient Withdrawal Planning

Which accounts you tap first matters. The traditional approach is taxable first, then tax-deferred, then tax-free. But you might consider a combination approach to maximize certain tax brackets, or even prioritize spending down tax-free assets if you plan to leave tax-deferred accounts to heirs in lower tax brackets or to charity.

Stress Test Your Plan

Use Monte Carlo simulations to test different scenarios, including bear markets at the beginning of retirement and different inflation rates. Be flexible and fluid with your plan, making adjustments as needed.

Consider using “guardrails,” where you start with a certain withdrawal rate and adjust spending accordingly if markets perform poorly or better than expected.

Financial Planning for Retirement: Getting Professional Help

Retirement planning requires a comprehensive approach that considers savings, investments, and potential lifestyle changes. With these six retirement planning strategies, you can improve your retirement outlook even if you’re feeling behind right now.

If you’re unsure whether you’re on track and don’t want to figure it all out yourself, consider working with a financial planner. At Imagine Financial Security, we help individuals over 50 with at least a million dollars saved navigate these complex retirement decisions.

If you are looking to maximize your retirement spending, minimize your lifetime tax bill, and worry less about money, you can start with our Retirement Readiness Questionnaire linked on our website at www.imaginefinancialsecurity.com. Click the “Start Now” button to learn more about our process and how we might be able to help you achieve a more confident retirement.

Not quite ready to take the questionnaire, but want helpful tips and resources? Sign up for our monthly newsletter and/or subscribe to our YouTube channel.

This is for general education purposes only and should not be considered as tax, legal or investment advice.

info@imaginefinancialsecurity.com
(904) 323-2069

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