While we often focus on saving for retirement, managing your wealth during retirement is equally important. In this month’s newsletter, we'll explore strategies to ensure your nest egg not only sustains you but continues to grow throughout your retirement.

The ideal scenario? Your portfolio grows as quickly as you withdraw from it. However, achieving that balance requires careful planning, risk management, and a retirement pot that's both sizable and sustainable enough to continue growing.

The retirement framework

Before diving into the specifics, it's important to have a clear understanding of your retirement needs. Consider the following factors:

• Lifestyle: What kind of lifestyle do you envision in retirement? Will you travel frequently, downsize your home, or pursue expensive hobbies?
• Healthcare: Healthcare costs tend to rise with age. It’s essential to account for potential medical expenses, including long-term care.
• Inflation: The cost of living will continue to increase. Plan for inflation to ensure your savings retain purchasing power over time.

The 4% rule is a simple and oft-mentioned rule of thumb for how much you should withdraw each year from your nest egg: 4% of your retirement savings in your first year, adjusting that amount for inflation in subsequent years. If inflation is at 2%, a $40,000 withdrawal would increase to $40,800 the following year.

With prudent wealth management and investing, this should ensure your savings last you for the rest of your life (or, about 30 years or more), assuming a balanced portfolio of 50% equities and 50% fixed income. However, it's important to note that the rule is simply a framework, not a rigid formula – it does not fully account for your individual circumstances or investment portfolio.

To estimate your target savings, you can work backwards using the inverse of the 4% rule. Since 4% is 1/25, you'd multiply your expected annual retirement expenses by 25 to get a ballpark savings goal. For instance, if you anticipate needing $100,000 in your first year of retirement, aim for a $2.5 million nest egg.

Balancing your needs and your wants

In retirement, budgeting becomes paramount. Keep a detailed record of your monthly expenses, categorising them as essential or discretionary. This practice will help you identify areas where you can trim costs if necessary. Prioritise essential expenses such as housing, healthcare, and food before allocating funds to discretionary spending like travel or entertainment.

Keep in mind that long-term care can be a significant expense in retirement. Discuss your preferences with your family and create a plan that outlines both your wishes and financial arrangements, and consider exploring long-term insurance plans to help cover potential assisted living costs.

Creating a sustainable strategy

For a strategy that’s sustainable, you’ll want to assess the income sources available to you upon retirement. This will help you budget effectively – and ensure you don’t withdraw more from your retirement pot than you can afford. These may include:

• MPF (Mandatory Provident Fund): Employers and employees contributed 5% of employee's relevant income.
  
• Savings and investments: Withdrawals from your personal savings accounts, alongside your investments.
• Other sources: Rental income, part-time work, or annuities.
  

Tax efficiency is another way to stretch your savings. Plan the order of your withdrawals from different retirement accounts or pensions to minimise taxes and maximise the growth potential of your tax-advantaged accounts. You might consider withdrawing from taxable accounts first, followed by tax-deferred accounts, and finally tax-free accounts.

Keep in mind, however, that laws for retirement income vary by country – the above tax strategy may not apply for you. If you're retiring in a different country or have assets spread across multiple jurisdictions, consulting with a tax advisor can be invaluable.

An asset allocation that evolves

Life circumstances change, and your retirement plan should be flexible enough to adapt. In the early years, you might maintain a higher allocation to equities to drive growth and outpace inflation. As you age, you may want to gradually shift towards more conservative allocations, increasing your fixed income and cash holdings.

The decision to take on more or less risk depends on your specific situation. If you can generate enough returns to replace withdrawals, or your nest egg is big enough to sustain you for 30 years (or more) with a conservative portfolio, then it's recommended to take less risk and focus on preserving your wealth. 

All in all, invest in a diversified portfolio and regularly review it to maintain your desired asset allocation. For instance, if stocks perform well and exceed your target allocation, you might need to rebalance towards bonds.

Growing your wealth for the long haul

Managing your nest egg is an ongoing process that requires careful planning and regular adjustments. By understanding your needs, creating a sustainable withdrawal strategy, investing wisely and staying flexible, you can navigate the financial challenges and opportunities that retirement brings.