A five-pillar retirement plan that addresses taxes, investments, income, health care, and estate planning should be taken into consideration.
Tax preparation
For the majority of retirees who have accumulated large sums of money in tax-deferred investments (401(k)s and IRAs) during their working years, taxes represent their largest expense. Financial planners also discuss it the least. The firm takes this area of attention seriously. Find ways to save your clients thousands of dollars by being aware of your tax situation and knowing how to take advantage of the tax legislation.
- Reduce your lifetime taxes by taking action. That is the main objective of tax planning. How are you going about this? by being aware of the opportunities at your disposal. Every year, over a list of more than fifty tax-saving techniques with clients at firm.
- Examine your tax return. Make sure your tax return is reviewed annually by a financial advisor with expertise in tax planning. They are able to see what you might be missing as a result. It also gives you a better understanding of how to make plans for the years you have left.
- Get ready for minimal distributions that are necessary (RMDs). When the government makes you do something, is that ever a good thing? That’s exactly what happens when you have to withdraw funds from your tax-deferred investments (RMDs). For those who have larger balances in their 401(k)s or IRAs, this may be a major problem. Imagine your tax-deferred investment account has at least $1 million in it. If so, you should begin preparing for RMDs as soon as possible. If not, you may have to substantially boost your retirement income, which might put you in a higher tax rate, make your Social Security taxable, and raise your Medicare payments.
- Think about conversions to a Roth. One of the more well-liked tax planning techniques is this one, which a lot of individuals ought to implement right away to benefit from reduced tax rates before the Tax Cuts and Jobs Act expires in 2026 and those rates rise. This is only the process of transferring your tax-free investments (Roth IRA) to your tax-deferred investments (IRA, 401(k), etc.). Just keep in mind that there are unique planning issues, so make sure you’re doing it right and won’t end up having to pay more taxes or penalties than necessary.
- Look into ways to donate to charities. Do you have a compassionate heart? If so, make sure you keep your tax advantages. If you are 70½ or older, you should consider targeted techniques such as qualified charitable distributions (QCDs); if you are younger, you should consider a donor-advised fund.
- Rely on calculators, reports, and tax software. To build a sound tax plan, you’ll need sophisticated tools and knowledge of how to apply these tactics. Before reaching a final choice, always use technologies to do several studies and reports for clients.
Planning for Investments
When it comes to this pillar, the primary query pose to those who are retired or almost retired is, “Are you taking on more risk than you need to?” In most cases, the response is in the affirmative. Recall that you do not have the time to make up for a significant market decline because you are in a different stage of life at this moment.
How can you make sure you’ve properly planned your investments?
- Use the life savings you’ve worked so hard to accumulate and seek development. As mentioned before, ensure that you have a “plan,” not a “portfolio.” Make a plan to achieve your objectives and risk tolerance. There’s no time to jeopardize all that you’ve fought so hard to achieve. Furthermore, you don’t need enormous returns at this stage of your life if you have saved enough money and done your work. Being the turtle in retirement is the plan, not the hare.
- Cut out on pointless costs. Many of the patients who visit us spend far too much for investments and guidance that has been handled by others. Pay attention to the funds you invest in that have higher expense ratios. Instead of paying two fees—one to us and another to the investment company that is responsible for the larger internal expenses— clients pay us to manage their accounts when they invest in low-cost options like exchange-traded funds (ETFs) and free individual stocks.
- Think about hiring a professional to manage your investments. The typical investor underperforms the market and can lack the knowledge necessary to choose wisely. Consult with a professional who can assist you in minimizing risks and maximizing returns. Collaborate with the “investment nerds” who are experts in this field and do it on a regular basis.
Budgeting for income
When you retire, your income stops arriving; instead, you have to make your own.
What steps should you take to make sure you’ve carefully considered how to use your income?
- A lifelong paycheck will help you stay afloat. For most retirees, running out of money is their biggest dread. Another common question get is how to take that large sum of money you have saved and use it to create a lifetime income that accounts for risks like inflation, taxes, longevity, and market volatility.
- Recognize your greatest possibilities for Social Security. When ought one to take it? What effect will it have on your taxes and how much money you keep for yourself? How do you make sure you and your partner optimize your hard-earned money and benefits from Social Security? You can better grasp your alternatives and tactics by having a professional do a thorough Social Security analysis.
- Get ready for rising prices. If you require $5,000 per month to survive now, you will require $10,000 per month in 20 years—roughly the historical average—if assume 3% inflation. It is crucial to make sure your income plan is structured to increase over time without putting you in danger of running out of money.
Planning for health care
One of the main worries of retirement is health care, particularly in light of the rising costs and growing demand as seniors live longer but may not necessarily be healthier.
What steps should you take to make sure you’ve budgeted for your unforeseen medical demands and expenses?
- Recognize your Medicare Parts A, B, C, and D options. What does Medicare’s alphabet soup mean to you? Once you turn 65, you have to decide which coverage is best for you. The majority of our clients enroll in Part B, and subsequently assist them in obtaining the appropriate supplemental insurance.
- Be ready to pay for long-term care. If you have family members who have experienced this, you are aware of the worry and the necessity of making plans. If you require the care of a nursing home, you may have to pay $100,000 or more year, or more than $50,000 if you would prefer a nurse to come to your home, according to Genworth’s Cost of Care Survey. Considering that 70% of those over age 65 will need long-term care assistance at some point in their lives, are you prepared to pay for this? There are many ways to plan for this possibility, but the key is to have a plan.
- Be prepared to pay for medical care out of pocket. The average couple 65 years of age or older will spend over $300,000 on health care during their retirement, according to Fidelity research. Do you have a strategy in place to ensure that you have access to funds when you need them most and allow for growth to keep up with inflation and the soaring expenses of healthcare?
Planning an estate
Everyone says they should have an estate plan, but hardly everyone actually does. This a lot to describe the circumstances that most people encounter. Regretfully, a 2023 Caring.com survey indicates that only 34% of Americans have an estate plan in existence. Thus, 66% of people pass away without having a will.
How can you be sure you’ve made arrangements for what will happen to your estate once you pass away?
- Finish the paperwork associated with your estate plan. Everyone who is 18 years of age or older should, in my opinion, have at least the most basic estate planning documents in place, such as a will and powers of attorney for finances and health care. It’s advisable to think about whether a trust is necessary. While not necessary for everyone, some people may find it beneficial to have one in place.
- Get ready to become a widow. To make sure you are ready for the possibility that one spouse will die before the other. Think about this: If you aren’t around to support them in making the best decisions, does your spouse have a reliable network of advisers they can turn to? In a situation such as this, consolidation is a crucial component of organization, therefore it could make sense to consolidate your investments for ease of access and comprehension. Finally, consider the widow’s penalty that you will incur if you switch from being married filing jointly to being single. The surviving spouse may have to pay almost twice as much in taxes as before due to this modification.
- Tax benefits to recipients are reduced. This is closely related to the tax planning pillar that just covered. while it comes to estate planning and attempting to save taxes while transferring wealth to a spouse, children, or charitable organizations, tax preparation is crucial.
