Accumulating (which is what we’re all taught—hopefully) a retirement nest egg is relatively easy.  It’s almost a little boring.  You determine how much money you need to have at retirement and start investing it.  Hopefully, you also learn to behave properly so you can make the most out of your investment portfolio during that accumulating stage.  (See our previous blog post).

Retirement is much more challenging.  Retirees are likely to have several cash flow resources, including their taxable savings account, social security benefits, a 401k or other retirement plan, and possibly even pension income (if they’re lucky!)  However, not all resources are created equal and how they are used is important.  Here are just of the issues:

• When is the right time to draw social security?  How is the best way to coordinate such withdrawals with your other resources?  How do a husband and wife make the most of the resources that are out there to maximize their long-term benefits?
• How to draw from tax-deferred accounts (such as IRAs, 401ks, or even, heaven-forbid, annuities) in order to minimize the long-term tax bite.  This might require significant IRA to Roth conversions in the early years of retirement (or even before retirement) to minimize the impact that Required Minimum Distributions and Social Security may have on your future taxes. 
• How to use taxable accounts.  Options include using them up first and keep deferring the tax-deferred accounts so they continue to grow without current tax.  Or do the opposite. 
• How to manage the investments within all these accounts?  Since each account will have its own role to play, they will all need to be managed differently so they can play their role properly.  Issues to consider include: 
  • How to invest to reach your goals.
  • How to maintain maximum flexibility and liquidity.
  • Where to hold bonds and where to hold stocks. 
  • How do to handle market fluctuations. 
  • How to combine withdrawals from all my resources to minimize taxes. 
  • When to time recognizing gains and losses in taxable accounts to maximize after-tax returns.

Yes, while retirement should be your “golden years”, there are lots of ongoing complex issues that have to be addressed.  The toughest part of all these issues is that they all need to be coordinated together, which is what makes our work with clients in retirement so rewarding!