Surviving In Retirement Today
Holly: Welcome to Money tips with Daniel. It’s been an interesting year with the stock market down around 17% and inflation running out of control. Daniel, what advice do you have for those retirees who are no longer working and saving and need to use their investments for daily expenses?
Daniel: It’s been a rough year for investing and for purchasing power. Retirees have seen their account balances down by six-figures. It can feel demoralizing, especially if you need to take some of that money out to pay for your bills in retirement.
The good news is that Social Security is raising your monthly benefit by 8.7% in 2023 so that will help alleviate some of the inflationary pressures and your wallet.
Another thing to consider is that taking more out of your account while it’s down has a multiplied effect on your lifetime income because when you take it out, it doesn’t have time to grow back. So taking out $1,000 today to pay for expenses is more like taking out $1,200 or $1,300 from your future self.
In light of that, it can be helpful to cut spending a little bit until the stock market recovers. No one knows when that will happen, but historically bear markets last an average of 13 months. The current bear market started in January of 2022.
Holly: Okay, so cut back in spending and look forward to the social security COLA adjustment. Do you have any other advice for this time?
Another sophisticated strategy you can employ during this time is to do a Roth conversion of some of your retirement account. This is advantageous right now because your lifetime tax bill is on sale while markets are down. Convert $30,000 today into a Roth IRA and then after the market recovers it will be $35,000 or $40,000 of tax-free income, and you only paid taxes on the $30,000. You just have to be able to pay the tax bill come tax-time next April. And this is not specific to your situation. Everyone should consult with their tax or investment advisor.
Holly: Alright, well that sounds like some great advice! If you’d like to contact Daniel, he can be reached at (540)580-2501 or online at www.upwardfp.com.
When Daniel is not giving financial advice or managing investments, he enjoys renovating properties, real estate investing, drinking coffee, hanging out with friends, spending weekend trips in his camper van, and exploring the outdoors on a hiking or biking trail in his hometown of Roanoke, VA and beyond.