Once you retire, your financial priorities will shift, and it’s important that you have a robust investment strategy in place to reflect this change.

Throughout your working life, it’s likely that you’ve focused on building wealth while enjoying your life in the here and now.

However, when you retire, wealth creation often takes more of a back seat, in favour of:

  • Sustaining an income to give you a comfortable lifestyle
  • Managing risk
  • Mitigating the effects of inflation.

This could mean adjusting your investment strategy to move away from building wealth and towards sustaining it. Read on to discover six key reasons why this is so important.

1. Making your money last

Good news. We’re all living longer, and this means that, as an expat living in the US, you could enjoy a retirement of 30 years or more.

However, alongside this positive news is something called “longevity risk” – the risk of living longer than your money will last.

Essentially, this means careful planning to ensure that you’re balancing your available income with your life expectancy.

For investors who have spent a lifetime building wealth, this can be a worry. According to Natixis, 40% of investors worldwide worry that they won’t have sufficient savings to fund their retirement, a figure which rises to 45% in the US.

This is why it’s key to develop a retirement strategy, so you can look forward to enjoying a comfortable quality of life in your later years.

A well-structured portfolio, specifically designed to support your retirement, can help you create a sustainable income that affords a comfortable lifestyle.

2. Mitigating the effects of inflation

Your financial strategy will need to factor in the potential impact of inflation on your wealth, so your investments can preserve their real-world value.

Inflation can erode the purchasing power of your wealth, meaning the same amount of money will be able to buy fewer goods or services.

Depending on the rate of inflation, this could make a significant dent in your wealth.

For example, inflation sitting at 2.4% a year will mean that $10,000 will need to increase to $16,070 after 20 years, just to maintain its buying power.

If your retirement spans 30 years or more, it’s easy to see how your everyday expenses could be much higher later in life, so it’s important that your income reflects this.

While you might want to adopt a lower-risk approach to your portfolio in retirement, to preserve stability, you could still consider investing in some growth assets such as equities. Over the long term, equity markets have historically delivered higher returns than cash and bonds, helping your investments to keep up with rising prices.

A robust retirement portfolio can offer the dual advantage of giving you a healthy income for your day-to-day spending, while also growing your investments to preserve your purchasing power in the long term.

3. Navigating the impact of market fluctuations (sequencing risk)

Sequencing risk is also an important consideration. It refers to the fact that the order of your investment returns can affect your outcomes. Essentially, not just how much your investments grow, but when the growth actually happens.

As you accumulate your wealth, market fluctuations can matter less, as even when they dip, you are still adding money to your portfolio.

However, once you begin to withdraw funds, the timing of market performance becomes more critical. Poor performance means that you’ll be selling investments at a reduced value, plus your portfolio will have less capital remaining for when the markets recover. In tandem, these events can affect the long-term sustainability of your portfolio.

On the other hand, strong returns early in retirement mean that your portfolio could grow before withdrawals start to reduce its value. This can give you a stronger asset base to support your future income.

This is why strategic planning is important. You can consider how to mitigate sequencing risk in your portfolio by looking at:

  • Investing in a diverse range of assets
  • Holding some of your wealth in cash or lower-risk assets
  • Making flexible withdrawals to adjust spending when the markets are weaker
  • Keeping some long-term growth investments to strengthen your portfolio over time.

It’s impossible to predict or remove market fluctuations, but we can help create resilience in your portfolio to factor in short-term market declines in your early retirement years.

4. Managing different sources of income

You likely have many different sources of wealth, such as your pension, savings, and investments.

As these may be taxed differently, your strategy needs to encompass all your income-producing assets to make sure your withdrawals are as efficient as possible. Fundamentally, it’s about planning which assets to withdraw from and when, to keep your tax bills as low as possible and make your funds last longer.

It’s also important to look at the balance of your withdrawals. If you take too much too soon, this could impact your portfolio’s long-term sustainability. Equally, taking too little upfront can mean you’re not able to enjoy the lifestyle you’ve worked hard to achieve.

5. Factoring in potential care costs

It can be difficult to think about the prospect of needing care in later life, but as these costs can be high, it’s important to factor this into your retirement strategy.

Maintaining some liquidity in your assets can help you access funds if you need them quickly to cover care costs. Having a balanced, risk-appropriate portfolio can offer you enough flexibility should you need funds quickly, without derailing your finances.

6. Gaining peace of mind

When you retire, the last thing you want is to be worrying about your finances. A clear, strong investment plan can help you to make the transition from saving to spending without fear.

Adjusting your portfolio to include a diverse range of asset classes and structuring a sustainable income can help you reach your goal of financial security.

It’s still important to factor in regular reviews, to take into account any changing circumstances as you progress through your retirement, and make sure your plan still reflects your personal goals.

Get in touch

As you have probably appreciated from reading this article, professional advice is important when you are looking to develop your investment strategy.

If you are an expat living in the US and would like to talk about your own arrangements, please get in touch to arrange an exploratory Zoom call to talk through your options.

Please note

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