Ask Chuck Price

Ask The Financial Doctor > Battling the Top Four Retirement Foes

Battling the Top Four Retirement Foes

1/8/2018 5:34:59 PM by Morgan Wendlandt Edited for Chuck Price Leave a Comment
We spend the majority of our careers in the accumulation phase of our retirement planning. We work to contribute to accounts, save what we can, find the most growth with the least risk. There is a lot of effort that goes into, well, what goes into your retirement account, and we tend to put a lot of focus on squirreling away our acorns throughout our career. But just like any hidden treasure, it's only as valuable as your ability to find it, unbury it, and utilize it. This is what we consider the distribution phase of your planning, or what we call to be your income plan.

As my father used to say, "Even a blind squirrel finds a nut," but stumbling across your savings and gathering income with blind luck is not the way to live out your golden years. Your income plan needs to provide the most advantageous strategy to withdraw your hard-earned savings in the form of income that you need in your retirement. This strategy doesn't have an easy path, and there are a few known foes that you need to focus on navigating with any income plan.

1. Taxes

When you start taking money out of accounts you've been building over the years, that money will be taxed as regular income. With that in mind, you need solid strategies that minimize the amount of tax you have to pay. Talking to a professional tax advisor can help you find strategies and options that are going to work for you, and that will legally reduce your taxes as much as possible. You want to stay in the lowest possible tax bracket, and make sure that a withdrawal or something similar doesn't push you over into that next bracket. And you want to avoid that when you're on a limited, retirement income. Getting hit with a big tax bill could definitely be problematic and stressful.

2. Inflation

You can't avoid inflation, and the amount you're living on now won't be the same amount you'll need to live on later. You'll have to take out more to get the same standard of living, so you want to plan for that. Build some inflation protection into what you're doing with your retirement savings. Then you can start taking out a little more as you age, and you'll be able to live comfortably all throughout your retirement. If you don't build that inflation protection into your retirement savings strategy, you might find that you have less and less spending power each and every year. That would be an unfortunate way to live, especially if you have a very long retirement and want to travel or do other enjoyable things during that time.

3. Investment

When you have investments, you're at the mercy of how well those investments do. If you have everything in the stock market, for example, and the market takes a nasty downturn, you could find your retirement savings effectively decimated. Rather than take that particular risk, you want to make sure you're spreading your investments around to protect yourself. You can do that with investments in a number of different areas, instead of only in one place or one type of investment vehicle. Putting your money into different things between investments, and with the help of a trusted advisor, you can make sure you don't lose all of your retirement savings if one of your investments underperforms. You need investment "buckets," for money that you need now, that you need later, and that you won't need for a longer period of time.

4. Legacy and Estate

Your retirement isn't just about you. It's also about the people around you and the people you will be leaving money to. You want to protect your legacy and your estate. There are several ways to do that, including life insurance and other alternatives. It's important that your retirement money is structured in such a way that it won't cause problems for the people you're trying to leave it to. When you set your retirement money up the right way, you can provide your loved ones with everything they need to transfer money from your estate after you pass away. That will help them avoid long delays, a loss of some of that money, and tax issues that could also impact them in the future. That way you'll feel safe with your current retirement goals, and you'll know your family will be financially protected when you're gone, as well.

It's important to remember that when you hit retirement, the planning work isn't over. The way in which you withdraw income can make a big difference in how you can enjoy the fruits of your labor, or to keep from mixing metaphors, the acorns of your labor.

This content created by Chuck Price in conjunction with Fusion Capital Management.

Have Questions? Ask Chuck!

Have Questions?
Google Analytics Alternative