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As retirement approaches, understanding the psychological and financial shifts from saving to spending becomes crucial. Explore expert insights and strategies for managing this pivotal transition effectively.
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Retirement Realities: A Guide to a Secure Retirement Transition

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For most of your adult life, you've been in "accumulation mode," diligently saving and investing to build a nest egg capable of supporting you through your golden years. As you inch closer to retirement, the spotlight moves from saving to spending—that is, how to judiciously distribute the assets you've worked so hard to accumulate. This shift in financial focus can be both challenging and intimidating. But understanding this transition and how to manage it is critical for ensuring that your retirement is as financially secure as it is fulfilling.

The Psychological Leap: More Than Just Numbers

Firstly, let's address the elephant in the room: shifting from accumulation to distribution is not just a financial transition, but also a psychological one. The idea of drawing down on a portfolio you've spent decades building can evoke a range of emotions—fear, uncertainty, even guilt. Recognizing these feelings is the first step toward effectively managing your new financial landscape.

The Balance of Risk and Reward

During your working years, the emphasis was likely on growth, meaning you might have had a portfolio skewed towards equities or other high-return investments. As you approach retirement, you'll want to revisit your asset allocation. While you still want growth—after all, retirement could last decades—you'll also need to preserve capital and manage risk more conservatively. Your investment strategy will need to be more balanced, perhaps incorporating more bonds or other low-volatility assets.

Developing a Sustainable Withdrawal Strategy

One of the biggest concerns for soon-to-be retirees is determining how much can be safely withdrawn from their savings each year without the risk of running out. There are various methods to calculate this, such as the 4% rule, which suggests withdrawing 4% of your portfolio in the first year of retirement and adjusting it for inflation thereafter. However, these are general guidelines. Tailoring this rate to your specific needs, market conditions, and life expectancy is highly advisable.

Tax Considerations: The Order Matters

In a tax-deferred account like a 401(k) or Traditional IRA, withdrawals are taxed as ordinary income. Funds from Roth IRAs are generally tax-free. Then there are taxable accounts, where only the gains are taxed, and usually at a lower capital gains rate. Strategizing the sequence of your withdrawals can save you a significant amount in taxes, thereby extending the lifespan of your retirement savings.

Adjusting Along the Way: The Importance of Annual Reviews

Your initial withdrawal strategy isn't set in stone. Unexpected expenses, market fluctuations, and changes in tax laws can all impact your retirement finances. Conducting annual reviews allows you to make necessary adjustments, ensuring that you remain on a sustainable path.

The Power of Preparedness

The transition from accumulation to distribution is a multifaceted challenge that requires careful planning and ongoing management. However, by understanding the psychological shift, rebalancing your portfolio, developing a tax-efficient withdrawal strategy, and making periodic adjustments, you can navigate this complex phase with confidence.

Should you have any questions or need personalized advice, our team of expert financial advisors is well-versed in the intricacies of this transitional period and are here to assist you. Shifting your financial mindset for retirement is an important endeavor, but you don't have to go it alone.

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Brickley Wealth Management is a Registered Investment Adviser*. Advisory services are only offered to clients or prospective clients where Brickley Wealth Management and its representatives are properly licensed or exempt from licensure. The information throughout this website is solely for informational purposes. The content is developed from sources believed to provide accurate information, and we conduct reasonable due diligence review however, the information contained throughout this website is subject to change without notice and is not free from error. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. Readers should conduct their own review and exercise judgment prior to investing and should carefully consider their own investment objectives and not rely on any post, chart, graph or marketing piece to make a decision. No investment or tax advice may be rendered by Brickley Wealth Management or Brickley & Company unless a client service agreement is in place. We are not providing any personalized investment advice through this website. Please consult your investment, tax, or legal advisor for assistance regarding your individual situation. Brickley Wealth Management does not provide legal advice, and nothing in this website shall be construed as legal advice. For more information on our firm and our advisers, please see the latest Form ADV and Part 2 Brochures and our Client Relationship Summary https://adviserinfo.sec.gov/firm/summary/287487. For a copy of our Privacy Notice, please go here.

*Please note that the term "registered investment adviser" and description of our firm and/or our associates as "registered" does not imply a certain level of skill or training.

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Key Financial Terms 
Related to this Post:

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Asset Allocation

The mixture of investments that you hold inside of your investment portfolio.
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Diversification

Spreading investments across different assets to reduce risk.
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Tax Deferred

Tax Deferred refers to investment earnings such as interest, dividends, or capital gains that accumulate tax-free until the investor withdraws and takes possession of them, typically at retirement.

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Contact@brickleywealth.com
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Brickley Wealth Management is a Registered Investment Adviser*. Advisory services are only offered to clients or prospective clients where Brickley Wealth Management and its representatives are properly licensed or exempt from licensure. The information throughout this website is solely for informational purposes. The content is developed from sources believed to provide accurate information, and we conduct reasonable due diligence review however, the information contained throughout this website is subject to change without notice and is not free from error. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. Readers should conduct their own review and exercise judgment prior to investing and should carefully consider their own investment objectives and not rely on any post, chart, graph or marketing piece to make a decision. No investment or tax advice may be rendered by Brickley Wealth Management or Brickley & Company unless a client service agreement is in place. We are not providing any personalized investment advice through this website. Please consult your investment, tax, or legal advisor for assistance regarding your individual situation. Brickley Wealth Management does not provide legal advice, and nothing in this website shall be construed as legal advice. For more information on our firm and our advisers, please see the latest Form ADV and Part 2 Brochures and our Client Relationship Summary https://adviserinfo.sec.gov/firm/summary/287487. For a copy of our Privacy Notice, please go here.

*Please note that the term "registered investment adviser" and description of our firm and/or our associates as "registered" does not imply a certain level of skill or training.

2020 Brickley Wealth Management. All rights reserved.
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