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These questions are common concerns in planning for retirement. How do you minimize these risks?  What plans can you put in place now and monitor through your retirement?

  1. First of all, prepare, in writing, your lifestyle goals and associated spending requirements in retirement. Consider several timelines with your lifestyle. For example, prepare lifestyle goals of 5 years, 10 years, 15 years and 20 years in the future. Specific goals and financial commitments may include:
    • Travel plans and estimated budgets.
    • Large capital expenditure such as boats, second homes or cabins
    • Significant hobby or learning expenses such as skill development and training to be fluent in a language in the next 5 years.
  2. Prepare a worksheet of your sources of income and withdrawals from your nonportfolio and portfolio / investment sources.
    • Nonportfolio income includes the following:
      • Social Security benefits and consider optimal timing to begin receiving your benefits and your spouse’s benefits.
      • Pension income, other deferred compensation income and consider optimal timing to begin receiving this income.
      • Annuity income – consider best time to receive this income.
      • Nontraditional income review should include real estate net rental income and royalty income as applicable.
    • Portfolio income review should include a comparison of your nonportfolio and portfolio income sources and your lifestyle expenses. If your lifestyle spending is $125,000 and your nonportfolio sources provide $75,000 annually, your portfolio of investments will provide the remainder of funds to fulfill your annual financial goals. Annual rebalancing of your portfolio would provide $50,000 for your lifestyle, and the portfolio can be set to minimize your annual income tax liability. For those who are near retirement or just retired, you have an additional opportunity to prepare strategy(s) to minimize your income tax over your lifetime.The traditional advice given to many retirees is to take withdrawals from taxable brokerage accounts before taking withdrawals from deferred tax accounts such as IRA accounts. Academic research has proven in many situations that this is a poor strategy that will cause retirees to run through their nest egg much faster and incur more tax than necessary including the risk of income tax bracket creep with each year into the future.

      Each retiree and their family have unique situations that should be analyzed to determine at least two or three best case strategies for them to consider. This kind of analysis will provide you optimal, tax efficient withdrawals from your accounts and peace of mind in your planning.

  3. With regard to the question of providing a financial legacy to your family, there are investment portfolio and tax strategies that will optimize your gift plans upon your death. Some examples include allocating your investments for a strategy known as the double step-up plan and plans to provide income tax-free funds for your heirs. In some situations, it’s prudent to have a portion of your income sources available to offset long-term care expenses or end of life expenditures to minimize the tax impact to you and your heirs.

Please contact our office for any questions or concerns that you wish to discuss.  We welcome your questions or comments with these important issues.

An Important Message

While every effort has been made to provide valuable, useful information in this publication, this firm and any related suppliers or associated companies accept no responsibility or any form of liability from reliance upon or use of its contents. Any suggestions should be considered carefully within your own particular circumstances, as they are intended as general educational information only.