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Practical Planning Tip: Year-end Budgeting for the Coming Year

December 18, 2023

Today’s year-end planning tip will cover the topic of Budgeting expense goals for the coming year.

It’s always essential for investors to assess their expenses and plan ahead for the future. Given the challenging economic backdrop this is even more important today than in previous years.

Cash Flow Management for Retirees: This is especially important since retirees must evaluate how much cash they will need in the year ahead to live on. They should work with their financial advisor to ensure they are able to meet their cash flow needs.

Mitigating sequence of returns risk: Make sure you have adequate funds in your rainy-day account. Typically, 3-6 months is a good rule of thumb for those who are working. Retirees may target a higher cushion to sufficiently mitigate this risk, which is experiencing lower or negative returns early in retirement when withdrawals are made from an investment portfolio. The order or the sequence of investment returns can significantly impact your portfolio’s overall value and, and consequently, your ability to maintain your lifestyle later in retirement. Simply keeping this cash cushion in a money market account is a prudent approach.

Planning Tip: While the US market is up many other areas of the global market may have dropped including bonds and real estate. It’s important for retirees to reassess their “safe withdrawal rate” from their investment portfolio. Many financial advisors use 4% as the safe amount of money an investor can withdraw from their nest egg every year. It’s worth reassessing these numbers EVERY year based on personal circumstances which may have changed, your age, time horizon, and market performance.

You can watch the FULL video here.