Retirement Investment Planning
Will you be in a lower income tax bracket during your Retirement Years than you were in during your Working Years? That’s been the assumption but it seems increasingly in question given the following:
- US debt is at alarming, historically high levels (see US Debt Clock)
- Many US states have income taxes beyond the federal tax burden
- You may live longer than you anticipated, stretching your resources
- Long term care and health care expenses may be more likely than you anticipated because you may live longer to experience more ailments.
If I asked you the question: “What is the next move for income tax rates? Up, down, or remain the same?” What would you guess?
Many Americans may guess “up”.
All of the above signals a need to invest–to take some risk–to help generate enough return to fuel your retirement.
Why? Because preservation of capital strategies may not generate sufficient returns to keep your resources–which many Americans will ultimately convert to retirement income–ahead of inflation to last as long as you do. You may be retiring but you also may have 20-30 years ahead of you. That’s more than enough time to participate in the expected growth of the world’s economy during that time through investing.
What Financial Legacy Will You Leave?
What Is a Certificate of Deposit (CD)
3 Tax Efficiency Strategies
Convert your pretax accounts to after-tax accounts (Example: 401k to Roth IRA). This will help immunize your retirement resources from the risk of higher income tax rates. Start doing this when you’re age 60 each year up to the next tax bracket so you don’t increase your tax rate. Consult your tax advisor if you have questions.
Use an asset manager (perhaps through a financial advisor for retirees) which offers tax harvesting (using losses to offset gains to reduce your tax liability) and tax overlay services (uses software to identify which financial positions to match to offset one another to reduce tax liability–it’s a step beyond tax harvesting).
Use product diversification (munis, life insurance, and other products) to move your future income off-tax return. Pay historically lower tax rates now so you don’t have to pay them later. That will help keep your reported income lower later in life.
Sound intimidating? It can be. That’s why you might want to engage a financial advisor for retirees to help you navigate and manage through all of this.
Having a . . .
1. Strategy you understand
2. your short term income needs not at market risk, and
3. a longer term investment strategy that’s aligned with your risk-comfort level to help you outpace inflation
. . . can help make the financial side of your Retirement Years easier.