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So, you are thinking about retiring?  What do you see? What are your dreams, goals and priorities for this time of your life? These answers are as distinctive as you are and we are here to help you define your vision for the future. So, whether you are in the "Golden Years" of your life or you have finally reached your goal with the F.I.R.E movement, we can help you plan your next steps.

Even if you have been saving for this point in your life, you may not have given thought to your lifestyle during these years.  This is where we can assist in creating a plan to transition from your working years to your retirement years.  Retirement is changing in America, retirees are living longer, people still want to work during these years, fewer companies offer pension plans, and social security benefits may not be your primary source of income.  Nowhere are people’s emotional wants and financial needs more directly in conflict than in the development and execution of a long-term retirement plan. 

Questions we try to address to help plan and develop your retirement income strategy.

  • At what age would you like to begin receiving Social Security Benefits? 

  • Have you contemplated the effect of Required Minimum Distributions on your retirement tax situation?

  • Do you have multiple retirement accounts at different institutions?

  • Should you consider consolidating accounts to save on fees and make it easier to manage?

  • Do you understand the long-term impact of taking withdrawals in a declining market?

  • How well do you understand the importance of the order to take your withdrawals?

Remember, retirement is shared between you and your loved ones.  You might want to travel, and your significant other might want to see the grandchildren everyday.  This is the time to make sure everyone is on the same page, plan accordingly and enjoy the benefits of these years.  And, as you plan your retirement budget, remember that a truly realistic approach to retirement planning doesn’t just allow for changes in your personal and financial circumstances, it takes them as a given. That’s why it’s important to have a dynamic spending strategy — one that you can adjust as your circumstances change.

Government benefits, pensions and your savings are generally your main sources of income for your retirement years. These are used to cover essential living expenses.  Extras like travel, hobbies and any legacy monies that you wish to leave to family or institutions could be part of your main source of income, however, most likely from your additional investments.

Timing of Withdrawals

The timing of when you withdraw money can have a significant impact on the taxes you pay in these golden years.  The order in which you withdraw money also matters. While everyone's needs are different, the general guideline for tax-efficient withdrawals is:

  • Taxable accounts first

  • Tax-deferred account next

  • Tax-free accounts last

Also, this order may vary based on your individual goals and tax bracket, so it's wise to consult an independent tax advisor.

Do you have a strategy for withdrawing the money you need? Social Security and pensions may provide a fixed amount every month, but you'll need a plan to make the most of your other assets. This is where we can help.   

As you begin to plan for retirement, you need to have an understanding of your expenses, dividing your expenses into the following three categories may help you plan for your retirement income needs.  

  • Essential expenses are basic, ongoing expenses like food, mortgage or rent payments, transportation, insurance premiums, taxes, basic health care costs, and other nondiscretionary living expenses.

  • Discretionary expenses include nonessential expenses, such as entertainment, travel, recreation, charitable giving, and luxury purchases. Because these expenses are not essential, you can adjust them if your lifestyle or financial situation changes.

  • Unexpected expenses include various long-term and unanticipated expenses, such as major health care needs, long-term care services, and personal emergencies.

Once you have the timing and order for withdrawals down, you'll need a plan for generating cash flow while keeping some assets growing. We can show you how to provide income using three basic elements:

 - Cash account for day-to-day expense

 - Short-term reserve (under 1 year) to cover emergencies and generate consist income

 - Long-term assets (over 1 year) for potential growth 

Your sources of income at retirement

Most people in retirement need to draw income from several sources. Even if you receive guaranteed income from Social Security, a pension and/or annuities, it may not be enough to cover all your expenses and support your lifestyle. You may also need to draw on your savings, investments and supplemental retirement income sources to generate income.

This is when we put your plan into action.  We start by determining your potential sources of retirement income and the dollar amount these sources will deliver.  The common sources are:

- Social Security

- Pension plans

- Annuities

- IRAs

- 401(k), 403(b) and/or 457 plans

- Other non-retirement accounts


Once you reach your required minimum distribution (RMD) date, you will begin taking distributions from any Traditional, SEP and SIMPLE IRAs that you have.  This will also include distributions that are left at former employers.

Things to know about RMD's

  • Your RMD is calculated by dividing your account balance at the end of the previous year by the appropriate life expectancy divisor, based on your age as of 12/31, from IRS Life Expectancy Tables. The Financial Industry Regulatory Authority (FINRA) offers an RMD calculator you may wish to use.

  • When your spouse is the sole primary beneficiary and is more than 10 whole years younger (meaning 11 years or more, not 10 1/2 for example) than you the IRS Joint Life Table can be used to determine the divisor.

  • If you do not satisfy all of your RMD, you may be subject to a 50% IRS tax penalty on the difference between the RMD and the amount that you actually took.

  • If you have more than one IRA, you must calculate the RMD for each IRA separately each year. However, you may aggregate your RMD amounts for all of your IRAs and withdraw the total from one IRA or a portion from each of your IRAs.

  • RMDs for Inherited IRAs must be satisfied separately from your other IRAs.

  • Distributions from Roth IRAs do not satisfy RMD requirements.

  • You cannot aggregate RMDs from all of your QRPs. You have to take RMDs from each QRP you have. You cannot satisfy your IRA RMD from your QRP or vice versa.


Things We Consider

Since people live longer, people are more liking to delay retirement and continue working longer or work part-time in retirement. We plan for a long retirement, we will discuss which funds can be used to cover medical insurance coverage and potential long-term care expenses. It is especially important for women to save more for retirement, since women tend to live longer than men.

Because your retirement incomes can be categorized into 3 distinct types.  We look at how to diversify your retirement income sources into 3 categories:

  • Dividend: Equity income investments.  Designed to provide long-term growth and income, equity income investments can help offset the effects of inflation. But, because of their growth potential, they are also subject to market volatility. As you approach retirement, keeping a portion of your investable assets invested in high-quality, dividend-producing stocks and equity mutual funds can hedge your retirement portfolio from inflation risk. These investments also give your portfolio the opportunity to benefit from strong market performance — which is increasingly important for retirees, as many people are spending 20 or more years in retirement. 

  • Interest: Bond and fixed income investments.  Interest-bearing investments offer the benefit of a stable, low-risk income stream, while also preserving your principal investment. They may offer protection against market volatility, but may also be subject to credit risk. As you near retirement, increasing your interest-bearing investments may help protect your portfolio from market fluctuations. 

  • Lifetime: Social Security, pensions, and insurance and annuity products.  By providing a fixed payment amount for life, lifetime income sources protect you from market volatility and lower the risk of outliving your money. Social Security benefits are the primary source of lifetime income for many of today’s retirees. Although you can start receiving Social Security benefits as early as age 62, or defer your benefits until age 70, the monthly payment amount you receive varies based on your retirement age.

Click here to schedule an appointment to discuss your retirement.

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