Why Smart Retirees Are Ditching Traditional Financial Plans

A retired couple balance on a fallen tree trunk as they hike in the woods.

(Image credit: Getty Images)

Today’s economic landscape is making it difficult for many to retire.

Inflation, market volatility, rising health care costs and uncertainty surrounding interest rates are taking their toll on Americans; 70% say their financial stress is at an all-time high, according to a recent survey by Talker Research on behalf of Doctor On Demand by Included Health.

That stress is pushing people to rethink traditional financial strategies that have been followed for decades. Old wisdom taught investment strategies such as the 60/40 portfolio, which allocates 60% of your investments to stocks and 40% to bonds, and the “set-it-and-forget-it” approach that purely relies on the S&P 500 Index.

From just $107.88 $24.99 for Kiplinger Personal Finance

Become a smarter, better informed investor. Subscribe from just ~~$107.88~~ $24.99, plus get up to 4 Special Issues

CLICK FOR FREE ISSUE

https://cdn.mos.cms.futurecdn.net/flexiimages/y99mlvgqmn1763972420.png

Sign up for Kiplinger’s Free Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

Those models are outdated and built for a different era, and today’s retirees need more than just market exposure — they need flexibility, protection and purpose behind their investments.

The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.

Just as markets don’t always move in a straight line, our investment goals are constantly changing. As people live longer, health care costs rise and more families support aging parents and children, they can’t build a financial plan that is focused only on growth.

That’s where planning, not guessing, comes into play.

I’ve seen firsthand how people feel more confident and less anxious when their financial life is broken down into clear, strategic roles.

So we’ve designed a process called the Tailor-Made Wealth Plan, a four-part framework that helps organize wealth in a way that reflects real-life risks and goals, not just theoretical averages.

The four financial roles every retirement plan should cover

Liquidity. Every plan should start with accessible cash in an emergency fund that covers three to six months of essential expenses. It’s difficult to predict when disaster could strike with a medical emergency, an expensive home repair or a large stock market correction.

This fund protects retirees from poor decisions during downturns and gives them the freedom to ride out volatility.

Income. After an emergency fund is built, the next priority is ensuring a guaranteed income stream covering day-to-day living.

For many, this means incorporating strategies like fixed indexed annuities, which grow based on the performance of a stock index, like the S&P 500, but where the principal is protected against market volatility.

Some fixed indexed annuities include an income rider, which guarantees a predictable income payment through retirement, for an annual fee.

Growth. Growth still matters, but with a tactical lens. We use active models and strategies that track key economic indicators each month to manage our clients’ investment accounts.

Depending on those signals, we shift our portfolios between growth-focused exchange-traded funds (ETFs) and defensive positions. It’s important to adjust investments based on economic strength to capitalize on growth without exposing yourself to risk.

Long-term care protection. As retirees live longer, many do so in poorer health and accumulate large medical expenses. Unfortunately, this is one of the most overlooked risks in retirement and can drain their portfolio if they don’t prepare for it.

People can self-insure this risk using hybrid long-term care strategies or asset-based long-term care annuities, ensuring that care doesn’t come at the expense of their legacy.

Don't forget to plan for taxes

Taxes also need to be considered within each financial plan. Even the most well-designed retirement plans can fall apart if taxes are ignored.

Ordinary income from IRA withdrawals can push you into higher brackets, required minimum distributions (RMDs) on tax-deferred accounts can balloon your taxable income and Medicare income-related monthly adjustment amount (IRMAA) surcharges can increase premiums if your income isn’t carefully managed.

Looking for expert tips to grow and preserve your wealth? Sign up for Building Wealth, our free, twice-weekly newsletter.

That’s why tax strategy can’t be an afterthought in your financial plan. You should work with a financial planner to strategically draw from retirement accounts, implement Roth conversions when efficient, minimize IRMAA penalties and align your plan with CPAs and estate attorneys.

Your retirement assets should be as organized and intentional as they were in your working years. In today’s market, real planning isn’t about chasing returns, it’s about aligning your wealth with your lifestyle, values and real-world uncertainties.

Don’t rely on a one-size-fits-all portfolio. A retirement plan shouldn’t just hope for the best — it should prepare for the financial challenges of the future.

The commentary on this article reflects the personal opinions, viewpoints and analyses of the author, Matt Eilers, and should not be regarded as a description of advisory services provided by Foundations Investment Advisors, LLC (“Foundations”), or performance returns of any Foundations client. The views reflected in the commentary are subject to change at any time without notice. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security, or any security. Foundations manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Foundations deems reliable any statistical data or information obtained from or prepared by third party sources that is included in any commentary, but in no way guarantees its accuracy or completeness.

A Roth conversion may not be suitable for your situation. The primary goal in converting retirement assets into a Roth IRA is to reduce the future tax liability on the distributions you take in retirement, or on the distributions of your beneficiaries. The information provided is to help you determine whether or not a Roth IRA conversion may be appropriate for your particular circumstances. Please review your retirement savings, tax, and legacy planning strategies with your legal/tax advisor to be sure a Roth IRA conversion fits into your planning strategies.

Any comments regarding safe and secure investments and guaranteed income streams refer only to fixed insurance products. They do not in any way refer to investment advisory products. Rates and guarantees provided by insurance products and annuities are subject to the financial strength of the issuing insurance company; not guaranteed by any bank or the FDIC.

This is not endorsed by the U.S. government or associated with any federal Medicare program. If applicable, we do not offer every plan available in your area. Any information we provide is limited to those plans we do offer in your area. Please contact Medicare.Gov or 1-800-MEDICARE to get information on all of your options.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

TOPICS

As the Founder of Medalist Wealth Management in Grand Rapids, Mich., Matthew Eilers understands that each client’s financial journey is different. After learning to budget at a young age, he served as an adviser to the advisers for nearly 16 years. He used his unique expertise to create Medalist Wealth, where he helps clients create custom-tailored retirement plans designed to meet their vision for the future.