I’m a bit of a rule breaker. I believe that the financial services industry has set people up for disappointment.  Specifically, I have an issue with the hype about building your “number” and the idea that happiness is all about having more as you move towards the perceived ideal of retirement.

Many in my world have their clients focusing solely on their quarterly account positions. –  This only causes angst when we have market corrections. Worse yet, it causes people react in a negative way when the economic season changes from summer to winter.   For an explanation of life, economic and financial seasons, please refer to my book Your Financial Revolution

Let’s discuss the mental and emotional dispositions needed to embrace the attitudes and habits that will, create an environment for living without regrets.

Take these three “rules” of retirement and throw them out the window.

  1. Retirement mindset.  As I discuss in my book, you don’t want to “retire” from a career or job, you want to “refire”, or “rewire” for the next exciting season of life than can last between 20 – 35 years.  Don’t just cross that artificial line in the sand, mindlessly file for social security and retreat a life of ease and leisure.  Sounds good, but research proves – it isn’t healthy!  Figure out your balance of vacation and vocation.  Ask yourself what will bring meaning, purpose, and engagement to life and strategically work the financial pieces to make it happen.

2. 4% Withdrawal rate.  Your financial life in retirement is inherently more complex than what William Bengen incorporated into his 1994 “4% rule”, which calls for a systematic withdrawal rate of 4% regardless of market conditions.

Our investment landscape has changed dramatically.  Long gone are the 5 to 8%  interest rates of the 90’s.  We are in new territory with monetary policy and potentially increasing interest rates.  Not only do you need to properly manage market risk, but interest rate risk, and longevity risk. People are living longer, enjoying the go-go years, considering the slow-go years and dreading the no-go years.

Taking out a systematic 4% for your investment portfolio does not incorporate the higher costs of health care or long-term care down the road.  Taxation issues throw an additional layer of complexity into the mix.    A static withdrawal rate also fails to take your dynamic life factors into account.  How do you discern between soul needs and ego wants?  How will you handle unexpected spending shocks?   Thinking that you can withdraw a set percentage from your portfolio for the long-term when your expenses continue to unfold and evolve is just wrong.

Your financial life in retirement needs to be fluid, making constant course corrections on your journey.  It is a complex, progressive flow that needs to be managed as intentionally as we manage the water that starts here in the Roaring Fork Valley and ends up in Mexico.

3. Take your RMD as income.  If you are 70 ½ and need to take your Required Minimum Distribution out of  your IRA, you would normally follow the” rule” and take it as ordinary income.  This distribution adds to your gross income and has an impact on what you pay for Medicare premiums, and how much of your Social Security will get taxed.

This isn’t necessarily the best alternative for certain people, namely those who donate to qualified charities.     If you are philanthropically inclined, and based on your individual tax situation (check with your CPA), you may be better off using the QCD (qualified charitable distribution).  You can send all or part of your RMD directly to a qualified charitable organization, thus negating the income on your 1040.

Since you are over 65, your standard deductions is now $13,600 for a single person, if you are both over 65, your standard deduction will be $26,600 for married filing jointly.  You may be better off taking the standard deduction instead of itemizing.  Utilizing the QCD can be a powerful tool to keep you income down and more of your money in your pocket!

Get pro-active and intentional about your belief systems, attitudes and behaviors in this rewarding time of life.  Put your financial tools to work for you as the wind beneath your sails, moving you towards your version of true prosperity.