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The new retirement vision: wealth, wellness, and meaningful work

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There's a reason we call our retirement our "golden years." It gives us the flexibility and freedom to focus on what we love: traveling the world, spending more time with family, pursuing passion projects, and philanthropic endeavors.

A successful retirement, like a successful career, takes hard work, careful planning, and often professional guidance. At the same time, several studies show that Americans have been rethinking when they want to retire.

Thirty nine percent of consumers hope to retire before age 65, more than in any year since 2010, with 18% of those saying they plan to retire by age 59.1

As timelines change, many people — from mid- and late-career professionals to retirees — are rethinking their long-term approach. Here are a few guidelines to help you align your plan with your goals, whether you're decades away, months away, or already into your retirement.

The mid-career approach to an earlier, longer retirement

Recent factors — like the pandemic and soaring stock markets — have been driving people to retire earlier, but even pre-pandemic, a Deloitte survey showed that our "always on" work culture has precipitated workplace burnout and a "life-is-short" outlook.2

Now, many mid-career professionals are asking themselves, "How will an early retirement affect my planning process?" The answer will differ depending on your specific circumstances. Besides the obvious, like controlling expenses, mid-career professionals should also focus on two areas in particular — investment strategies and tax minimization.

Investing beyond traditional retirement accounts

The retirement cornerstones like IRAs and 401(k)s are popular and can be relatively low-risk options for people looking to save, but they come with restrictions when it comes to contributions and withdrawals. Because of that, you may want to consider leveraging investment assets in addition to your retirement accounts.

Taxable brokerage accounts can offer high earners a lot more flexibility than traditional retirement accounts. For instance, there are no income limits or rules about when you can sell off the funds and withdraw the cash. So while you don't get the pre-tax benefits of retirement accounts, brokerage accounts can help you generate wealth leading up to and into retirement; they also give you the freedom to spend it whenever and however you want.

That may be one reason why more and more investors are turning to them. Over the past year, brokerage accounts have witnessed significant growth. With fintech making it easier and more affordable than ever before to trade, major brokerage platforms have witnessed huge increases in both trading volume and new account creation.3

One thing to keep in mind: Brokerage accounts may entail taking on more risk, depending on how you invest. But there are also lower-risk "set-and-forget" options — like index funds and exchange-traded funds (ETFs) — that can still give you flexibility down the road.

For taxes, timing is everything

Unlike brokerage accounts, the main appeal of retirement accounts like 401(k)s or 403(b)s are the tax advantages like tax-deferred growth and deductions on contributions.

"But that's not to say a brokerage account is tax-inefficient either," says Forbes Senior Contributor Kristin McKenna. "Long-term capital gains tax rates are much more favorable than 401(k) or IRA withdrawals, which are taxed as ordinary income."4

That's why many advisors suggest withdrawing funds from your taxable investment accounts first, in order to fully leverage the lower dividend and capital gains tax rates. Next, you can pull from your tax deferred accounts like 401(k)s and traditional IRAs. Tax-free retirement accounts like Roth IRAs should generally be drawn from last. Wall Street Journal reporter Tom Lauricella explains: "Because withdrawals from a Roth IRA are made free of both income and capital-gain"5 Plus, the restrictions on a Roth IRA mandate that in order to withdraw tax-free in retirement, you must have had the account for at least five years and be at least 59 ½ years old. These may seem like concerns for much later down the road, but having a clear idea of which accounts you'll withdraw from and when will help you determine your optimal investment strategy along the way.

Nearing retirement: Time to Review, Reallocate, Rollover

Whether retiring early or not, in 10 years or less before retirement you should review your risk profile to determine whether your investment portfolio needs reallocation.

"A 70-year-old client may have the risk capacity of a 30-year-old," Santander Financial Consultant Surya Sapra said, emphasizing the importance of a personal relationship with your financial consultant to plan accordingly. That way, you'll be better protected in the event that there is a dip in the market.

"People nearing retirement typically have about 40% of their retirement savings in the stock market," Bloomberg economist Allison Schrager explains. "But odds are the stock market will have a significant decline at some point during the 20 or 30 years you are retired — maybe more than once."6

The pandemic forced many Americans to rethink their risk profiles and adjust their timelines across the board. Some decided to stay put to amass more income because of market uncertainty, while others rushed to close shop because of realized gains in the stock market, surges in housing values, or a reprioritization of their life.7

One aspect of life many people nearing retirement are reconsidering is where they want to live long-term. Especially with the pandemic, many are choosing to be closer to family. In 2021, multigenerational living shot up nearly fourfold, according to a recent survey, with 26% of Americans now living in a three-generation household.8

Regardless of whether you're considering buying a new home, it's important to remember that retiring with debt is generally seen as a retirement no-no. But not all debt is created equal. For the sake of your retirement portfolio, aim to pay down high-interest-rate credit card and private student loan debt first, and then move to a mix of debt repayment and investing when your debt interest rates are less than potential stock market returns.9 These can include mortgages, federal student loans, and car loans.

Retirement Is Here: What Happens Now?

You are still an investor during retirement. Even as you draw down your accounts, you need to continue to make savvy investment decisions to ensure you avoid running out of money too soon. During the early years of retirement, try to avoid touching the principal of your accounts, and make sure you have a clearly articulated plan in place to balance your cash flow.

Planning the right tax withdrawal strategy in advance is important. Financial Consultants like Sapra work with Santander clients to prepare them for external risk factors in retirement like bear markets and higher tax plans.

The 4 Percent Rule, a well-known retirement withdrawal strategy to help ensure your nest egg lasts as long as possible, requires you to add up all of your investments and withdraw 4 percent of that total during your first year of retirement. In subsequent years, you may need to adjust the dollar amount withdrawn to account for inflation.

Because of the many complexities of retirement, speaking to a financial planner about your particular spending habits can help gauge if this or any other commonly cited retirement rule makes sense for your retirement goals and needs.

"Money is the most concrete expression of every neurosis we carry," says Jill Schlesinger, a former Certified Financial Planner Board of Standards ambassador. "Someone dealing with your finances can really be transformative — it’s like removing an anvil from your back."10

The right financial planner will design a comprehensive financial strategy that can accommodate your shifting priorities, unexpected life events, and changes in the market. More than that, they help you keep an objective stance on your financial life and make it easier for you to actually enjoy your retirement, instead of stressing about the minutiae of retirement’s financial implications.

Key Takeaway

Outliving retirement savings is a top concern for pre-retirees, especially those looking to retire early. So are the stressors of starting too late and saving too little. With personalized support and attention at Santander Private Client, work in partnership with our dedicated financial consultants to create retirement strategies that help give you peace of mind and grow your nest egg so you can continue enjoying life.

You'll benefit from a senior relationship banker and access to financial services including a complimentary financial planner who can help you create a customized investment plan. Plus, you’ll have your pick of a suite of services including asset and tax management, transition to retirement, protection, and risk management, as well as wealth preservation guidance.

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This article is intended for informational purposes only. Readers should consult their own financial advisers, attorneys, or other tax advisors regarding any financial or tax strategies mentioned in this article.

Securities and advisory services are offered through Santander Investment Services, a division of Santander Securities LLC. Santander Securities LLC is a registered broker-dealer, Member FINRA and SIPC and a Registered Investment Adviser. Insurance is offered through Santander Securities LLC, or its affiliates, including Santander Investment Services. Santander Investment Services is an affiliate of Santander Bank, N.A.


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