![]() Tax Advantage Maximizationīroadly speaking, retirement portfolios come in three categories:Ī taxed portfolio is one that has no special tax advantages. It can take a huge bite out of an unprepared portfolio. ![]() Whether you approach this from a diversification strategy or take another approach, be sure to plan for sequence risk management. A diversified portfolio also will give you capital to tap into during a down market, so that you can sell strong assets and replace weak assets while their prices are low. Those markets usually move counter-cyclically against each other, allowing you to sell your stocks if your bonds are down and vice versa. For example, say you have investments in both stocks and bonds. However, a strong approach is to maintain a diversified portfolio, with money kept in multiple asset classes. There are a number of ways to plan for sequence risk. This forces you to take a potential loss on your assets and leaves your portfolio with fewer assets to recover its value when the market bounces back. In all cases, though the basic risk is the same: You have to withdraw money while the market is down. In an annual context, this is the risk that your early retirement will coincide with a recession. It’s more commonly discussed on annual terms, though. It can happen in short bursts, for example, if you need to make withdrawals early in the year during a short downturn. In a nutshell, this is the risk that your portfolio will face market downturns at the same time that you need to make withdrawals from it. Sequence risk, otherwise known as “ sequence of returns risk,” is the risk posed by market fluctuations during your retirement. However, when income and circumstances allow, keeping your money in place as long as possible is a good strategy. The whole point is that this is money you’ll live on, after all. Now, putting everything off isn’t a viable strategy for most retirees. For any given account, waiting longer usually means more money in the long run. The more money you can keep in your retirement accounts, the more you can maximize compounding returns. Social Security pays more if you begin collecting at age 70 than at 62. ![]() In virtually all cases, your retirement options will grow in value if you can put off making withdrawals. Your exact deadlines will depend on personal circumstances and income needs, but a good rule of thumb is this: Delay. Your general investments, as well as your Roth accounts, have no age limits whatsoever. Social Security is available beginning at age 62, but must be taken starting at 70. Most tax-advantaged retirement accounts require minimum distributions at or around age 72. ![]() One of the biggest moving pieces when it comes to retirement is your network of age-related deadlines. This is less a strategy than an overall mindset, but it’s still important to discuss. ![]()
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