- Tax Risk- For most retirees the bulk of their income will come from IRAs and/or other taxable retirement accounts. This taxable income will affect how much of your Social Security will be taxed and how much you will pay for Medicare. Consider converting your taxable accounts into a tax-free Roth IRA to reduce the effect taxes will have on your retirement.
- Stock Market Risk- We are in the second longest bull market in history. The longest bull market was from 1990-2000 and we all remember what happened when that bubble burst. Since March of 2009 the S&P 500 has increased over 200%, meaning your money should have doubled twice during that time frame. At some point we expect this bubble to burst as well and hope the resulting bear market is not as dramatic as it was in 2000, 2001, and 2002. The other risk associated with the stock market is excessive trading risk. Unnecessary trading activity creates taxable capital gains as well as additional fees and commissions.
- Longevity Risk- Thanks to medical advances, we are all living longer. Will you have enough money to last for the next 20-30 years? The easiest way to run out of money is to take withdrawals during a declining market. This is called sequence of return risk. If you are taking a withdrawal of 5% and the account declines by 15%, then the entire account is reduced by 20%. This means the next withdrawal you take will be a much higher percentage than what was taken in the the previous year. If the percentage is too high, you could add stress to the investment and risk running out of money.
Marc Montini and Dennis Farrah have a combined 54 years of experience in retirement and tax planning. Montini & Farrah Tax Advisory Group in Phoenix, AZ is available to help meet your retirement planning needs.