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How Investment Planning Changes as You Approach Retirement
For most of your working life, investing probably had a fairly straightforward purpose: grow the money. You contributed to a 401(k), IRA or other investment accounts, and while markets moved up and down, retirement was still years away. A difficult market year could be uncomfortable, but you usually had something valuable on your side: time.
As retirement gets closer, that changes. The same portfolio that was built primarily for accumulation may soon need to help replace your paycheck, fund larger expenses and remain invested for a retirement that could last decades. That means investment planning near retirement is no longer just about how much your portfolio grows. It becomes a question of when you will need the money, what each part of the portfolio needs to accomplish and how much market risk the overall retirement plan can reasonably absorb.
That distinction is especially important during the years immediately before and after retirement, sometimes referred to as the retirement risk zone. Retirement researchers continue to focus on this period because portfolio losses can have a greater effect when withdrawals are approaching or have already begun.
For Financial Planning Month, this is a useful time to look at your investments through a different lens. Instead of only asking whether your portfolio performed well, it may be more helpful to ask whether the portfolio is prepared for the job retirement is about to require it to do.
Investing Changes When Retirement Is No Longer Far Away
Someone who is 45 and someone who is 65 could own the same investments and experience the same market decline, but the financial impact may be very different. The 45-year-old may have another 20 years of contributions and market recoveries before needing the money, while the 65-year-old may be preparing to withdraw from the portfolio within months. Once withdrawals begin, market losses can become more difficult to recover from because some investments may have to be sold while values are lower.
Why the Order of Market Returns Matters
Imagine two retirees who experience similar average returns over a long period. One experiences stronger markets early in retirement and weaker markets later, while the other experiences significant losses in the first few years and stronger markets later. Their long-term average returns could end up looking similar, but their retirement outcomes may not.
The reason is that the second retiree may be withdrawing money while investments are down. Once those shares are sold to fund spending, those dollars are no longer available to participate in a future recovery. That is the basic idea behind sequence-of-returns risk, and it is one reason the timing of market declines can matter more once retirement withdrawals begin.
The point is not that market declines should be avoided. They are a normal part of investing. The more important question is whether the retirement plan is structured so that a difficult market does not automatically force every part of the portfolio to respond the same way.
Retirement Planning Should Not Depend on Predicting the Market
Once people understand sequence risk, it can be tempting to believe the solution is getting in and out of the market at the right times. In reality, consistently predicting short-term market movements is not a reliable retirement strategy.
Recent market conditions reinforce how difficult that can be. Market valuations can vary significantly across sectors, company sizes and investment styles, which makes broad conclusions about what the market will do next especially difficult. That kind of environment does not tell a retiree exactly what to buy or sell. What it does reinforce is that markets rarely provide a perfectly clear signal for long-term retirement decisions. A retirement investment strategy should therefore be designed to function without requiring you to know what the market will do next.
Start by Asking When You Will Need the Money
One way to make retirement investing easier to understand is to stop thinking of the portfolio as one large pool of money. Different dollars may have different jobs, and money needed in the next year or two should not necessarily be treated the same way as money that may not be needed for another decade.
At Freedom Financial, we often explain this through the Fiscal House framework, which organizes money according to time horizon and purpose. That same idea is reflected in our broader retirement planning process, where investment decisions are considered alongside the other parts of retirement planning.
Money Supporting Immediate Income Needs
The foundation of the Fiscal House represents the portion of the plan responsible for supporting current income needs. If certain dollars are expected to help cover regular expenses soon, exposing all of them to significant short-term market fluctuations may create unnecessary pressure on the plan.
The goal is not to eliminate risk. It is to understand how much of your lifestyle depends on assets that may fluctuate in value and whether there are other income sources helping support those expenses.
Money for Mid-Term Retirement Needs
Other assets may be intended for expenses that are still several years away. That could include replacing a vehicle, completing a major home project, traveling or supporting another planned expense during the first decade of retirement.
Because these dollars have more time before they may be needed, their investment strategy may look different from money supporting today’s expenses. They may still require a greater emphasis on risk management, but the time horizon gives them a different role within the portfolio.
Money With a Longer Time Horizon
Some assets may not be needed for 10 years or longer, which gives them a different job within the retirement plan. A retiree in their 60s may still have a multi-decade investment horizon, so inflation, healthcare costs and future lifestyle needs can continue to affect the plan long after retirement begins.
For that reason, maintaining some long-term growth potential may remain important. This is why moving an entire portfolio to cash simply because retirement is approaching can create its own set of challenges. The goal is not to make every dollar more conservative. It is to align the level of risk with the job each part of the portfolio needs to perform.
Investment Planning Is About Managing Different Types of Risk
Market volatility is one form of risk, but it is not the only one. A portfolio that becomes too conservative may have difficulty keeping pace with inflation over a long retirement, while a portfolio that remains highly exposed to market fluctuations while also funding near-term expenses may create more pressure during a downturn.
The more useful question is not how to avoid risk altogether. It is which risks the retirement plan can reasonably afford to take and where those risks belong. This is also where diversification and asset allocation become important. These strategies can help manage risk within a portfolio, but they do not guarantee profits or prevent losses in declining markets.
Your Investment Strategy Should Be Connected to Your Income Plan
Before deciding how aggressively or conservatively retirement assets should be invested, it helps to understand what the portfolio will actually be asked to provide. How much will you need to spend each month? How much will Social Security provide? Will you have pension income or other recurring income? How much of the remaining need must come from investments? Are there larger expenses expected during the first several years of retirement?
Without those answers, an investment allocation can look reasonable on paper while still being disconnected from the actual retirement plan. Coordinating investments and income can help clarify the different roles those strategies may play within a broader retirement plan.
Taxes Also Matter When Repositioning Retirement Investments
Investment changes can create tax consequences depending on where the assets are held. Selling investments inside an IRA is different from selling appreciated assets in a taxable brokerage account, and rebalancing can also have tax consequences and transaction costs in taxable accounts.
That is why investment decisions near retirement should not happen independently from tax planning. A change that improves one part of the portfolio may still create an unintended consequence somewhere else if the broader financial picture is not considered.
Build an Investment Strategy Around Your Retirement Plan With Freedom Financial
The closer retirement gets, the less useful it becomes to evaluate a portfolio only by its rate of return. The portfolio may soon need to support income, provide flexibility and continue growing for future needs, all at the same time.
At Freedom Financial, we help families look at investments in the context of the entire retirement plan, including income, taxes, healthcare and legacy planning. Our Retire with Freedom Process is designed to help families understand how those pieces fit together and whether the strategy that helped build their wealth is also prepared for the years when they begin using it.
If retirement is getting closer and you would like to stress-test how your current investment strategy fits into the rest of your retirement plan, call Freedom Financial at 205-988-0006.
Investment advisory products and services made available through AE Wealth Management, LLC (AEWM), a Registered Investment Adviser.
Investing involves risk, including the potential loss of principal.
Neither the firm nor its agents or representatives may give tax or legal advice. Individuals should consult with a qualified professional for guidance before making any purchasing decisions.
Freedom Financial Group is not affiliated with the U.S. government or any governmental agency.
This blog is intended for informational purposes only. It is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. 4525207 – 9/26
How IRA Withdrawals Can Affect Medicare Premiums in Retirement
Retirement often brings a major change in the way you think about your money. Instead of earning a regular paycheck and steadily adding to your retirement accounts, you begin deciding when and how to use the savings you’ve spent decades building.
At first glance, some of those decisions can seem fairly straightforward. You may need extra income for a home renovation, consider a Roth conversion as part of your long-term tax planning, or sell investments to help fund a major trip.
Each decision may seem independent, but retirement planning rarely works that way.
One financial decision can create ripple effects that influence taxes, healthcare costs, future income planning and even the amount you pay for Medicare. Many retirees don’t realize how closely those areas can be connected until after a decision has already been made.
Understanding those connections can help you ask better questions before making a significant financial move and reduce the likelihood of unexpected consequences later in retirement.
Why Medicare Premiums Aren’t the Same for Every Retiree
Many people enter retirement assuming everyone pays roughly the same amount for Medicare. While there are standard premiums, some retirees pay more for Medicare Part B and Part D because of the Income-Related Monthly Adjustment Amount, commonly known as IRMAA.
What often surprises people isn’t simply that these higher premiums exist. It’s how Medicare determines whether they apply.
Medicare generally looks at income reported on your federal tax return from two years earlier when determining whether IRMAA applies. As a result, a financial decision that increases your income today may not affect your healthcare costs immediately, but it could influence what you pay for Medicare in a future year.
For retirees who are beginning to take distributions from retirement accounts or making larger tax-planning decisions, that two-year connection is important to understand.
How IRA Withdrawals and Roth Conversions Can Affect Future Medicare Premiums
Retirement planning isn’t about avoiding IRA withdrawals or deciding that a Roth conversion should never be completed. Both may have a place within a thoughtful retirement strategy depending on the individual circumstances.
The more important question is how each decision fits into the larger picture.
For example, increasing taxable income through a larger traditional IRA withdrawal or Roth conversion may help accomplish a separate planning objective. A Roth conversion could potentially reduce the amount remaining in tax-deferred accounts later in retirement or provide greater tax flexibility in future years.
At the same time, the additional income created by that conversion may affect whether higher Medicare premiums apply because of Medicare’s two-year income lookback.
Similar considerations may arise when someone takes a significant IRA distribution, realizes substantial capital gains, sells highly appreciated investments or receives other sources of taxable income.
None of those decisions is automatically good or bad. What matters is understanding the potential consequences and evaluating the decision alongside the other parts of the retirement plan rather than in isolation.
Retirement Income, Taxes and Medicare Work Better When They Are Planned Together
One of the biggest changes people experience in retirement is realizing that financial decisions don’t fit neatly into separate categories anymore.
During your working years, retirement planning may have focused primarily on accumulation. You contributed to retirement accounts, saved consistently and gave your investments time to grow.
Once you begin using those assets for retirement income, the conversation changes. You now have to determine where your income should come from, how much to withdraw, when to take distributions and how those choices may affect other areas of your financial life.
A larger retirement-account withdrawal, for example, can increase taxable income. Higher income may affect future Medicare premiums. Higher healthcare costs may change the amount of income you need to support your lifestyle, which can then influence future withdrawal decisions.
When viewed separately, each decision may seem manageable. Taken together, they create a much more connected retirement picture.
This is one reason the retirement planning process at Freedom Financial looks beyond investment management alone. Investments are important, but so are the tax implications of distributions, future healthcare costs and the way different income sources work together over time.
Five Questions to Consider Before Making a Large Retirement Withdrawal
You don’t need to memorize every Medicare rule or tax threshold to make thoughtful retirement decisions. In many cases, a better starting point is understanding which questions should be considered before moving money.
Before making a significant retirement-account withdrawal or completing a Roth conversion, it may be helpful to work through questions like these.
How Will This Affect My Taxable Income This Year?
A distribution from a tax-deferred retirement account can increase taxable income for the year in which the money is withdrawn. A Roth conversion can have a similar effect because the amount converted is generally included in taxable income.
Before making the decision, it is important to understand where the additional income may place you from a tax perspective and whether it affects other parts of your financial picture.
Could This Increase My Medicare Premiums in the Future?
Because Medicare generally uses your Modified Adjusted Gross Income (MAGI) information from two years earlier to determine IRMAA, today’s income decision may have a delayed impact.
Looking beyond the immediate tax consequences can help you understand whether a larger withdrawal, conversion or realization of capital gains could also influence future Medicare Part B and Part D costs.
Is This the Right Year for a Roth Conversion?
The decision to complete a Roth conversion involves more than determining whether you can pay the resulting tax bill.
Your current income, expected future income, other planned withdrawals and potential Medicare implications may all be part of the conversation. The appropriate timing and amount will depend on your individual circumstances rather than a single rule that applies to every retiree.
Would Spreading Income Across Multiple Years Provide More Flexibility?
Some retirement decisions don’t necessarily have to happen all at once.
Depending on the situation, evaluating how income is distributed across several tax years may provide additional flexibility compared with making one much larger move in a single year. The important part is considering the potential tradeoffs before deciding how and when to act.
How Does This Decision Fit Into My Long-Term Retirement Income Strategy?
Perhaps the most important question is whether the decision makes sense within the retirement plan as a whole.
A withdrawal that accomplishes an immediate goal can still affect taxes, Medicare costs and future account balances. A Roth conversion may create a tax cost today while changing the composition of your assets for later years.
Looking at the long-term effect can help keep one financial decision from unintentionally working against another part of the plan.
Coordinated Retirement Planning Can Help Reduce Unexpected Surprises
Most retirees aren’t trying to eliminate every tax bill or prevent every possible increase in healthcare costs. They’re trying to make informed decisions with a better understanding of what those decisions may affect.
That’s why coordination matters.
Retirement isn’t a collection of isolated financial choices. Taxes, Medicare, investments and income decisions can influence one another over time. Looking at those areas together can provide a more complete picture before a major financial decision is made.
At Freedom Financial, our retirement planning process is designed to help families understand those connections and think through how today’s decisions may affect the years ahead. The goal isn’t to predict every outcome. It’s to build greater clarity around the choices you can control.
Learn How the Pieces of Your Retirement Plan Work Together With Freedom Financial
If you’d like to better understand how taxes, Medicare, retirement income and investment decisions can interact, Freedom Financial invites you to attend one of our Educational Retirement Planning Courses.
During the course, we walk through many of the financial decisions that can shape retirement and explain why looking at the entire retirement picture can be important before making significant moves with your money.
To learn more about upcoming courses or reserve your seat, call Freedom Financial at 205-988-0006.
Insurance products are offered through the insurance business Freedom Financial Group. Freedom Financial Group is also an Investment Advisory practice that offers products and services through AE Wealth Management, LLC (AEWM), a Registered Investment Adviser. AEWM does not offer insurance products. The insurance products offered by Freedom Financial Group are not subject to Investment Advisor requirements.
Investing involves risk, including the potential loss of principal. Any references to protection, safety or lifetime income, generally refer to fixed insurance products, never securities or investments. Insurance guarantees are backed by the financial strength and claims paying abilities of the issuing carrier. Neither the firm nor its agents or representatives may give tax or legal advice. Individuals should consult with a qualified professional for guidance before making any purchasing decisions.
Please remember that converting an employer plan account to a Roth IRA is a taxable event. Increased taxable income from the Roth IRA conversion may have several consequences. Be sure to consult with a qualified tax advisor before making any decisions regarding your IRA.
Freedom Financial Group is not affiliated with the U.S. government or any governmental agency.
This article is meant to be general and is not investment or financial advice or a recommendation of any kind. Consult a financial advisor before implementing any strategy discussed here. 4412064 – 9/26
Why Annuities Deserve a Seat at the Retirement Table
If retirement planning were simple, everyone would just follow a rule of thumb, set it, and ride off into the sunset. Unfortunately, real life insists on being… real.
Markets move. People live longer than expected. Spending doesn’t follow neat little spreadsheets.
That’s why more conversations today are shifting from “How do we grow wealth?” to a more important question:
How do we turn wealth into reliable income that lasts?
And this is exactly where annuities start to matter.
The Problem Most Retirement Plans Quietly Ignore
A lot of traditional retirement strategies rely heavily on market-based withdrawals. Think the classic “4% rule” approach.
The issue? It assumes a level of predictability that simply doesn’t exist.
- Markets don’t deliver steady returns
- Inflation changes the game
- Longevity risk is very real
Even the research behind the 4% rule has been increasingly questioned as conditions evolve.
In other words, relying solely on investments to generate income can feel a bit like trying to time the weather. You might get lucky. You might not.
What Changes When You Introduce Annuities
According to J.P. Morgan’s research, incorporating annuities into a retirement strategy can meaningfully improve outcomes.
One key finding:
Adding an annuity allocation increased the probability of sustaining a $45,000 inflation-adjusted income from 85% to a higher success rate compared to investments alone.
Translation:
More certainty. Less guesswork.
That’s because annuities aren’t trying to win the market. They’re designed to do something much more practical:
Provide a consistent income stream you can’t outlive.
Why That Works (Even If It Feels Counterintuitive)
Insurance companies operate differently than individual investors.
They pool risk across thousands of people, allowing them to:
- Account for varying lifespans
- Smooth out market volatility
- Deliver income with greater predictability
This structure often allows annuities to generate more reliable lifetime income than an individual portfolio alone could safely support.
It’s not magic. It’s math… just math most people don’t have access to on their own.
The Real Benefit Isn’t Just Financial
There’s also a human side to this.
Studies show that retirees with guaranteed income sources:
- Feel more confident about spending
- Worry less about market swings
- Experience less financial stress overall
Which makes sense. When part of your income is predictable, the rest of your portfolio doesn’t have to carry the entire burden.
Who Might Benefit Most
J.P. Morgan highlights several types of individuals who may benefit from incorporating annuities, including:
- Those nearing retirement who want income stability
- Individuals concerned about outliving their savings
- Investors looking to balance growth with protection
- People without access to a traditional pension
In other words, people who would prefer their retirement income plan to feel more like a paycheck… and less like a science experiment.
It’s Not “Annuities vs. Investments”
This is where things often get misunderstood.
The conversation isn’t about replacing investments with annuities.
It’s about combining them intentionally.
Research continues to show that pairing:
- Market-based investments (for growth and flexibility)
- With annuity income (for stability and longevity protection)
…can create a more balanced and resilient retirement strategy.
A More Thoughtful Approach to Retirement Income
At Freedom Financial, we don’t look at retirement as a single decision. It’s a series of trade-offs:
- Growth vs. protection
- Flexibility vs. certainty
- Today’s lifestyle vs. long-term sustainability
Annuities are simply one tool in that conversation. But for the right situation, they can play a meaningful role in helping turn savings into dependable income.
Because at the end of the day, retirement isn’t just about having enough.
It’s about knowing your plan is built to last.
Insurance products are offered through the insurance business Freedom Financial Group. Freedom Financial Group is also an Investment Advisory practice that offers products and services through AE Wealth Management, LLC (AEWM), a Registered Investment Adviser. AEWM does not offer insurance products. The insurance products offered by Freedom Financial Group are not subject to Investment Advisor requirements. Investing involves risk, including the potential loss of principal. Any references to protection, safety or lifetime income, generally refer to fixed insurance products, never securities or investments. Insurance guarantees are backed by the financial strength and claims paying abilities of the issuing carrier. This article is meant to be general and is not investment or financial advice or a recommendation of any kind. Please consult your financial advisor before making financial decisions. 3927910 – 4/26
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