Despite the challenges that the economy, the stock market, and the tax laws present to us, you can build your confidence as you strive for your goals with a well guided financial, retirement income, and tax plan. Those goals may be on the savings side, or they may be planning for your retirement income, or even perhaps continuing to enhance and enjoy your current retirement.
The first step, though, is to have a plan. That plan can help you with your Accumulation Phase, as you save, and then with your Distribution Phase as you plan for and maintain your retirement income.
As you plan for your savings and retirement, think of the image of a mountain, perhaps Mt. Everest. The climb up the mountain is your Accumulation Phase, where you are saving and hoping for a return on your money. The focus is normally on growing your money and asset allocation. As you climb up and get close to the top, you start to consider your next phase, the descent down the mountain, your Distribution Phase. This period may last as long or even longer than your climb up. Here, you should consider your sources of retirement income and the associated risk. This phase focuses on continuing to grow your money, while also looking towards preservation and asset designation. Additionally, you need to consider your inheritance and your legacy, for your spouse, family members, and perhaps charities.
For retirement planning or the retirement journey, many believe there are boxes to check off. For example, one determines when to start their Social Security income, checks the box, and then continues on. However, have they considered the income tax consequences? What if they want to continue to work or work part time? Your road to financial independence involves more.
Do you have a plan for your retirement income? Will your income last for your lifetime and that of your spouse, if applicable? I believe many would answer these questions with “I think so,” or “I am pretty sure.” However, what if you could be more certain and confident in your retirement income?
You will want to generate a plan that is easy to understand, presents options and opportunities, and is flexible. It should include your current situation and investments, your savings, time length, and a reasonable growth rate. Then you can project your income in retirement.
I like to break your retirement income down into two categories, Fixed income and Variable income. Your Fixed will include your expected Social Security income (although there are risks here) and perhaps a pension income. Your Variable will be money withdrawn from your investments. The total will be your expected Gross Income. Your income taxes need to be estimated and deducted from your gross to get your expected Net Income. You can compare this to what income will be needed, making sure you add in an inflation factor. If there is a gap between what will be needed and your expected income, you can then explore other ideas to help shrink that gap. These may include additional savings and tax minimization strategies.
A discussion regarding the risks involved is necessary – longevity, health, investment results, timing or sequence of returns, withdrawal rate, inflation, and tax risks. Other risks, beyond your control, which are necessary to understand include the U.S. Government’s debt and deficit, plus the risk of reduced Social Security benefits.
Everyone wants to save their money, grow it over time, eventually take income from it, and pay as little income taxes as possible. While most do well saving their money, they do experience the volatility of the stock and bond markets and the accompanying emotional rollercoaster. The challenge becomes how to turn these savings into income for retirement, while also minimizing income taxes.
To address these risks, our proprietary Playbook Pro Method® breaks down your investments into Offense, Defense, and Special Teams. This will help you determine how much of your investments you want in the market, how much of your income you want to protect, and how much of your income will be or do you want to be income tax-free.
Today, traditional conventional advice is being challenged. Challenge the status quo!
We strive to provide you with the confidence and clarity for your overall financial and retirement income plan.
You are welcome to reach out to meet anytime by emailing andyp@paladinofinancialgroup.comor calling me at410-252-7630.