Today’s investment markets have seen a dramatic rise in volatility. This increased volatility can make us more uncertain about the future of our retirement. Will we have enough money to retire when we want to retire? Will we need to work longer than anticipated? Will we have enough income to last throughout our lifetimes? Any of these questions can be challenging to deal with on their own but combined they become a daunting issue for anyone to tackle.

The first decision you need to make is how much money will you need to maintain the lifestyle you desire during retirement. This decision can be a complex task, so it is often best to work with an experienced financial advisor to arrive at your number. You will want to factor in taxes, inflation, health care and other data. 

Once you have your “number” you will need to decide how to spend it. You can choose to flatten your nest egg or spend it down. If you flatten it, you will only spend the interest. This will leave you with your base amount to be passed on as a legacy to your loved ones or favorite charity. If you spend it down, you will have much more income during your retirement years, but you will be left with nothing except the value of your home and life insurance proceeds when you die.

For many people, they don’t have enough savings to achieve their desired lifestyle by spending only the interest generated by their savings, but at the same time they don’t want to try to time their death and risk outliving their savings. Therefore, for most people, they will spend down their retirement but take a lower income to ensure they at least have some money left over when they die.

Just as critical as how much to spend during retirement is the accounts from which to spend it. Taxes play an important role and can be different depending on your age when you take withdrawals. For example, a 401(k) account can be one of the most heavily taxed accounts when passed on to heirs.

The timing of your retirement can also have a significant impact on your ability to sustain the income you desire throughout your lifetime. Choosing to retire during a downward trend in the market could impact your retirement fund significantly. For example, over a 15-year period, making regular withdrawals from a retirement fund during a downward trending market could reduce your balance by 67% or more. 

The best way to prepare for these potential issues is to diversify your portfolio. This is not just done by your stock and bond mix, or by your domestic/international blend, which have an impact on your accumulation rate, but by the class of your investments, which have an impact on your distribution rate. Remember, it is not only about your rate of return, but about how much ends up in your pocket. 

You have many choices in how to invest your savings for retirement. You can choose 401(k), IRA, Roth IRA, brokerage accounts, annuities, life insurance, taxable, tax-free, cash and many others. Choosing one or two of these options gives you one or two options for retirement. Setting up your retirement in multiple versions of these accounts arms you with the most weapons to combat rising taxes, volatile market conditions and guaranteed lifetime income for you and your spouse. The most important thing you can do is to setup a plan and stick to it. Even if times are uncertain, your retirement plan does not have to be.