The most important day of your life: The one where you don’t need to work for money anymore.

The most important day of your life: The one where you don’t need to work for money anymore.

April 25, 2024

Retirement, or as we like to call it - Work optionality, is a time everyone needs to be prepared for.

Here are a few things to help you to succeed:

Sequence of return risk: AKA – poor returns +/- 5 years from retirement can lead to a greater risk of running out of money before you want to. There are ways to plan around and minimize this risk such as glide paths and flexible withdrawal rates.

Safe withdrawal rate: SWR is the amount you can withdrawal from your portfolio each year without running out of money before you want to.

The rule of thumb for is 4% of your account value, but it depends on factors like allocation and inflation. Again, most people have success with a variable withdrawal strategy like guardrails.

Asset allocation: The question of where to invest the money.

As your time horizon changes, so should your asset allocation. But remember you’re not only investing TO retirement, but THROUGH retirement.

Also, your allocation in different tax buckets should not be the same. If you have non-qualified dividend paying stocks in a taxable individual or joint account, you will pay tax on that money as if it’s ordinary income – as opposed to the lower capital gains tax rates.

Tax allocation: It’s important to be aware of the 3 ‘tax buckets’ when it comes to tax allocation.

1) Tax deferred accounts – 401ks, Traditional IRAs, 403(b)’s, etc.

2) Tax Free accounts – Roth IRA’s, Roth 401k’s, etc.

3) Taxable accounts - individual, joint, Trusts, etc. Each of which has powerful tax benefits you can take advantage of like - Tax deferrals - Roth conversions - Tax loss/gain harvesting and more.

RMDs Required Minimum Distributions: are forced distributions from your tax deferred accounts beginning at age 73.

This is basically the government saying “Hey, you’ve deferred your taxes long enough – time to pay up”. This can often lead to retirees paying as much or more tax in retirement than they did while working.

But there is always opportunity to plan around this through tax planning, estate planning, charitable giving, etc.

Roth conversions: Roth conversions allow you to take advantage of the low tax rates during different stages of life These allow you to convert your tax deferred money into tax free money, so you never have to pay tax on that money again.

Social security: When it comes to optimizing your social security, make sure to check out your options early on.

Estimate benefits using tools like this (no affiliation) https://opensocialsecurity.com

Take the time to understand factors like your retirement age, taxes, and how benefits might change over time.

Medicare: Medicare can be a lifesaver for healthcare costs, but navigating its different parts and coverage options is not easy Take the time to research and understand what each part covers and consider talking to an expert about your options.

Charity: If you’re charitably minded, make sure to maximize your tax savings Some of my favorite charitable strategies:

QCDs: A qualified charitable distribution (QCD) allows individuals who are 70½ years old or older to donate to one or more charities directly from a taxable IRA instead of taking their required minimum distributions.

CRTs: A charitable remainder trust (CRT) is an irrevocable trust that generates a potential income stream for you, as the donor to the CRT, or other beneficiaries, with the remainder of the donated assets going to your favorite charity or charities.

DAFs: A donor-advised fund, or DAF, is like a charitable investment account for the sole purpose of supporting charitable organizations you care about.  

In combination with bunching to ensure you’re over the standard deduction.

Lifestyle goals: Most importantly remember to think about what type of lifestyle you want in retirement and work backwards from there.

Most people don’t want to sit around on the couch all day, but they don’t know what they want to do.

Start by creating a detailed description of your perfect day and think of some of the things you’ve always wanted to achieve.

We hope this helps and feel free to reach out if you have any questions or just want to talk!