Typical financial advice follows the “accumulate now, withdraw later” plan. The problem with this is that people live on cash flow, not on net worth. Plus, typical income financial strategies won’t keep pace with inflation.

Creating income or cash flow from assets is fundamental to any strategy for financial independence. Yet, most people are relying on strategies that ultimately handicap their cash flow, draining it with never-ending taxes and fees in retirement.

Typical financial advice leads to typical strategies (and typical problems):

• People are told to accumulate as much money as you can in your 401(k) and other retirement accounts until you start taking distributions. In the meantime, cross your fingers and pray the stock market doesn’t crash.
• When people retire, they realize it will cost a fortune in income taxes to pull money out of a traditional retirement account. As a result, money remains in qualified plans where it continues to be taxed. Perhaps people roll over 401(k)s into IRAs, but (unless it is a Roth), they’ll pay the same endless taxes.
• At or near retirement, stocks are often traded for less volatile, lower-risk assets. Hopefully, when it’s your time to retire, you can “sell high.” If you retire when the market is depressed, should you wait for a recovery or cut your losses? (If that’s you, ask us about a strategy that has benefitted many of our clients.)
• Advisors often say, “it will all work out,” yet many people worry they will run out of money once retired. Even less volatile investments such as dividend stocks can lose substantial value and bonds that pay aggressively are often risky!
• People are told to draw down assets at no more than 3% of principal – or less. (The former “4% rule” has been downsized to a mere 2.25 to 2.5% due to high inflation. Withdraw faster, and you could deplete your nest egg.)
• Typically, you’re advised to keep a portion of assets in cash equivalents such as certificates of deposit, although rock-bottom interest rates encourage many seniors to take unnecessary risks. And if you hold cash in your retirement account, you could be moving backwards after fees.
• Funds in taxable retirement accounts remain subject to future income taxes as well as various qualified plan rules. Most retirees resign themselves to pay income taxes forever at an unknown future income tax rate. (Given the recent explosion of government spending, many experts predict tax rates could soar.)