Realty Mogul AdIf you haven’t read the first four parts of this series, I suggest you go there first:

  • Part 1: Sequence of Returns Risk, Inflation Risk, and the Safe Withdrawal Rate
  • Part 2: Getting income from your various asset classes
  • Part 3: Non-Portfolio Income and how it relates to your portfolio
  • Part 4: Early Retiree issues and Tax Diversification

In Part 5, I’m going to discuss a few last issues relevant for the retired investor.

The Retiree Spending Cycle

Retirees don’t generally spend money in the same way financial planners usually model it (i.e a constant level of spending or an inflation-adjusted level of spending). They spend lots of money early in retirement in the “go-go years.” Then they spend decreasing amounts in the “slow-go years.” Then, during the “no-go years” they spend less and less until the very end, when spending goes through the roof, usually on health care and long-term care related costs. If you really want to delve into the details on this subject, I suggest the Bogleheads Wiki page on it. But the point is that all that stuff you imagine when you think about retirement isn’t nearly as appealing at 80 as it was at 60. You’re probably not going to want to go on a cruise every month. This effect (higher spending in early retirement) can exacerbate the sequence of returns issues discussed earlier in this series, of course.

Bonus points for naming the beheaded guy

Bonus points for naming the beheaded guy

What Happens When You Die?

If you’re reading this post, there’s a good chance you’re the one in your marriage or partnership who handles the money and is good at it. You know about all the investing accounts, insurance policies, bank accounts, bills etc. While every investor needs to have a plan in place in case something happens to them, this becomes more of an issue for a retiree, especially an older retiree. Perhaps having your investments spread across 15 mutual funds in 12 different accounts at 4 different brokerage houses isn’t such a good idea. The older you get, the more appealing a simple investing plan should be. Combine all your 401(k)s and IRAs into one place. Keep your taxable accounts all at one brokerage house or mutual fund provider. Reduce the number of asset classes and consider fund of fund investments like Vanguard’s Life Strategy and Target Retirement Funds. You don’t necessarily want to sell low-basis taxable shares (especially if you’re likely to die in the next decade) but you can transfer them in kind. Consider holding taxable investments in the name of the older, sicker spouse to enable the step-up in basis to occur sooner. Maintain an updated instruction list for what to do financially in the event of your death. If this isn’t something you envision your spouse doing, have a plan for a trusted family member or advisor to assist. Don’t make your spouse feel guilty about getting help that you don’t need. Remember it may not take avoiding very many mistakes to more than make up for reasonable advisory fees.

Your Own Incompetence

medical student loan refinancingHow many 90 year olds do you know who really seem to be competent enough to manage their own money without assistance? What makes you think you’re going to be any different? Just like you need a plan for your spouse in the event of your death you also need a plan in the event of your own incompetence. A trusted child you’ve spent 60 years training might be a great choice to step in. An adviser who might not be needed at 60 might be very useful at 90. It’s dreary to think about, but seems better than the situation many of us have watched grandparents go through.

Balancing Estate Planning, Asset Protection, Investing

Finally, just like throughout the rest of your life, you’ll see that there is a balance to be struck between solid investing returns, asset protection, and estate planning. In retirement, the return of your principal often becomes more important than the return on it. Asset protection is likely less of a concern for you once you have quit practicing medicine (unless you’re an OB/GYN or pediatrician with a long statute of limitations!) Protecting assets from conniving family members or unscrupulous advisers may become more of an issue.

Estate planning will likely become much more important to you as you move into retirement. If you don’t yet have a revocable trust to keep most of your assets from going through probate, it’s time to do that. Keep your will updated. You may want to redesignate beneficiaries for retirement accounts or insurance policies. Your children (if you’ve done your job well) may be in a good financial position and you can leave that stuff to the grandkids. Consider the benefits of stretch IRAs. Consider doing Roth conversions (far better to inherit a Roth IRA than a traditional one!) If you’re going to have an estate tax problem, start giving money away to your heirs and charities, or start an irrevocable trust. Spend some money on a meeting with a good estate planning attorney in your state. If you expect to leave money to both heirs and charities, remember which accounts should go where:


Best for heirs:

  1. Tax-free
  2. Life Insurance and Taxable
  3. Tax-deferred

Best for charity:

  1. Tax-deferred
  2. Life insurance and Taxable
  3. Tax-free

Investing in retirement has a few unique issues associated with it, as discussed in this five part series. Proper planning, whether done on your own or in association with highly-qualified professionals is critical.

What did you think? Did I miss anything in the series? Comment below!