Retirement Decisions

The financial choices and decisions a person makes before and at the point of retirement could be among the most important he or she will make in life. They will affect how one lives throughout retirement — possibly 30 or more years, or one third of one’s lifetime.

The decisions a person makes in retirement are just as important. Planning for such a long period requires careful thought and consideration of many different tax and investment options that are available to a retiree. While there is no single “silver bullet” strategy, there are a number of general principles that we believe that all retirees should consider when crafting their own unique lifelong investing and income plan:

• Once on track to having enough assets, a retiree should consider — as a guideline — what may be a “sustainable” rate of withdrawal from his or her nest egg — depending on the expected age of retirement. 

• Retirees should carefully assess the timing of their decision to begin collecting Social Security (or the payment stream from a defined benefit plan). They should understand the potential benefits to their portfolio’s longevity by giving up income from these sources in the “early” years of their retirement. They should also consider guaranteed income products that can further enhance their lifelong income “base.”

• Retirees who decide to delay collecting Social Security or defined benefit income — and also, possibly, convert some assets to guaranteed future income, may be able to draw down substantially more funds from their assets in the early years of retirement than “sustainable” withdrawal guidelines may suggest. Retirees will be able to reduce their withdrawal rates once the lifelong guaranteed income sources they have delayed kick in.

• Retirees should carefully consider the order or “hierarchy” of accounts from which they choose to draw retirement income. Drawing from assets in an uninformed or “basic” order may result in substantial, and avoidable, additional tax costs.

• While there is a generally reliable withdrawal order that applies in most cases, some retirees may be positioned to save on taxes by breaking with this conventional wisdom – for example by mixing withdrawals from tax-exempt and tax-deferred assets. Retirees should consult a tax and/or financial advisor on whether such tax minimizing tactics may work for their particular situation.

• Retirees should also be aware that income draw-downs can impact their overall asset allocation. They should regularly check their total portfolio – and rebalance if necessary to sustain a mix of stocks, bonds and cash that is appropriate for their age and risk-tolerance.

 • Finally, a retirement income plan should be flexible so that it can be changed as a retiree’s own circumstances change. Perhaps the most important step is simply to break inertia — actually begin the planning process. The sooner people start, the better prepared they’ll be to make informed decisions or effect changes that could substantially alter their retirement lifestyle or future security.


About Don James, CPA/PFS, CFP
Don is the Tax & Financial Planning partner with Kiplinger & Co., CPAs headquartered in sunny Cleveland, Ohio since 1982. He partners with business owners and families and specializes in goal achievement solutions, tax minimization strategies and serves in the role of gatekeeper of sound financial advice.

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