5 Ways to Better Retirement Planning

Alright, here we go. The start of another summer is upon us. If you’re like me, you’re daydreaming about all the fun you’re going to have over the next three months. The vacations you’ll take, the books you’ll read, the memories you’ll make.

This is also another one of those times when many people ponder their future. They dream of a different career, a better job, or even calling it quits completely. Yes, a relaxing at the coast or high in the mountains does have a way of changing your outlook. Speeding along your plans to retire.

If this is you, let’s talk about five retirement planning mistakes for those nearing Decision Day.

If this is you, let’s talk about five retirement planning mistakes for those nearing Decision Day.

Driving Too Fast

Different investments move at different speeds. Growth stocks tend to move faster than Treasury bonds. They tend to deliver better long-term returns. But, along with that, you tend to experience more volatility or risk—a bumpier ride. If you have enough time on your side (i.e. your decades away from retiring), you have the ability to withstand all that choppiness. You can focus more on those long-term returns.

But, as you get closer to actually needing to draw income from your savings, you need to account for volatility. You don’t want to see your investments cut in half right before you need to start taking money out. That will cripple your long-term returns and likely cause significant emotional stress.

But, as you get closer to actually needing to draw income from your savings, you need to account for volatility.

How to prepare: Think about the next five years. How much income will you need your investments to deliver? Keep that amount in less volatile investments like cash and diversified bonds. Driving your investments a little slower should reduce some of the volatility.

Not Consdering All Socials Security Options

Many retirees decide the best time to turn on social security is 62 simply because it’s the earliest they can start receiving benefits. They don’t fully evaluate possible benefits to waiting.

Many retirees decide the best time to turn on social security is 62 simply because it’s the earliest they can start receiving benefits.

How to prepare: Go to SSA.gov and pull up a recent social security benefits estimate. Evaluate your benefits at various ages. Think about how much of your lifestyle those benefits will cover. The more Social Security covers your lifestyle, the less stress it will put on your retirement savings. Your tolerance for volatility and risk will be a big factor in deciding when to turn on social security benefits.

Not considering how you’ll get your income

This is a common issue when you’re simply looking at your net worth when determining when to retire. You may have investments like your home, raw land, jewelry, boats or antique cars. These assets may be valuable but if they don’t spit off cash, it will be hard for them to fund your lifestyle.

This is a common issue when you’re simply looking at your net worth when determining when to retire.

Other assets like annuities may have limitations on how much money you can access in a given year.

How to prepare: Consider selling some non-cash generating assets and replacing them with more cash generating investments. Or simply eliminate them from your retirement planning strategy. In the case of annuities, make sure you don’t have too much of your retirement savings tied up in accounts that limit withdrawals. You may have years with larger cash needs and you’ll want to have ways to access the necessary funds.

Not considering tax implications

Not considering tax implications...

Different accounts are taxed differently. That’s the whole reason many investors have their money in so many different accounts. Traditional IRAs/401ks/403bs are considered pre-tax retirement accounts. This means you got the tax benefits on the front end and will owe taxes on every dollar you distribute in retirement.

Conversely Roth IRAs/Roth 401ks and Health Savings Accounts that are used for qualified health expenses are generally tax free when money comes out.

That’s because in the case of the Roths, you put the money into the accounts after taxes were taken out of your income. Both pre-tax and post-tax retirement accounts can be effective pieces in your retirement strategy, but having all your money in one type may limit your ability to adjust your taxable income in retirement. This may cause some of the assets to be taxed at a higher rate.

That’s because in the case of the Roths, you put the money into the accounts after taxes were taken out of your income.

Inherited accounts may add another wrinkle to your strategy because they have their own distribution formulas depending on how or when you inherit the money.

How to prepare: Evaluate where your retirement savings is located. If the bulk of it is going to be taxed similarly, look to diversify by shifting more money into an account that will be taxed differently. You can do this by saving future dollars into a different type of account or you can do a conversion on your current savings.

It’s vital to note: there is no one-size-fits-all strategy. The best solution will be personal to you and your needs. They don’t consider the impact of taxes on their savings.

It’s vital to note: there is no one-size-fits-all strategy.

Not considering other implications

Health care is one of the biggest expenses for retirees. The price you pay for monthly premiums may be impacted by your taxable income. That’s true whether you’re already on Medicare or using an Affordable Care Act Marketplace plan. This is another reason why you want to consider how you get your income.

You’ll also want to have a strategy regarding long-term care. Maybe it’s an insurance option. Maybe you can account for it through your traditional savings or a Health Savings Account.

You’ll also want to have a strategy regarding long-term care.

How to prepare: Think about when you’re planning to retire. If it’s prior to 65, consider the costs of private insurance. Ask about subsidies that may be available at specific income levels. If you’re already on Medicare, ask how premiums may be impacted based on income.

This material is provided as a courtesy and for educational purposes only. Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.

All views/opinions expressed in this newsletter are solely those of the author and do not reflect the views/opinions held by Advisory Services Network, LLC.