We offer an integrated approach to tax planning and financial advising, from our family to yours.

Too often, retirees solely focus on whether they have the appropriate amount in savings when making the decision to retire. Don’t get me wrong. Your savings is a major player in determining when and how you can retire. However, it’s really only one third of the equation.

I recently read a British study that noted the average retiree admitted to being bored within one year of retirement. I can’t speak for everyone, but I don’t see myself as being that much different from our friends across the pond, (Maybe more so Irish than British in my case, according to family genealogy, but the point remains) so I think the study was a relevant one for us Americans. It’s important to look beyond whether you have enough for retirement, but also when you do enough, and when you’ve had enough.

Unless you’re one of the lucky few who are extremely passionate about their work, checking the box of had enough is usually not too much of a reach for those who are a few years away from retirement age. But what about doing enough?

Retirement is the time in your life to relax and enjoy the fruits of your hard work. It’s important to make sure you’ll be able to fill your time with more than sitting around the house watching your favorite programs. Everyone has different passions, so there’s no one size fits all recommendation on how to do this, but it’s crucial that you have a plan. Successful retirement is all about planning, and that’s not limited to just the numbers.

Fully Understanding Social Security

 Social Security can be complicated. For about half of seniors, it provides at least 50% of their retirement income. This makes it critical that you take the time to fully understand your benefits and how social security works. According to a 2019 study by United Income, only 4% of Americans begin Social Security at the most opportune time, averaging $110,000 in lost income. Don’t be part of the 96% making this mistake.

Everyone should create a social security account by visiting socialsecurity.gov. This will allow you to see what you are currently entitled to, and what earnings years are being used in this calculation (Social Security will take your 35 highest earning years to determine your benefit).  You’ll be able to see your full retirement age (This is dependent on the year you were born. For those born in 1955, full retirement age is 66 and two months, gradually increasing to 67 for those born in 1960 or later) although everyone who is eligible to collect social security is also eligible to receive reduced benefits starting at age 62.

Retirees also have the option of waiting until after full retirement age to collect. For each year a retiree waits to collect social security past full retirement age, their benefit is permanently increased by 8% per year. You can delay up to Age 70. For someone reaching full retirement age in 2017, delaying to age 70 to collect would increase their monthly social security benefit by 32%.

Social Security planning is further complicated when examining survivor benefits and spousal benefits. Add in a what-if analysis on what happens to your investment portfolio if you delay collecting social security for the increased benefit and have to live off your savings in the meantime, and you have a very complex case study. It’s important, though, to leave no stone left unturned, and get the timing right to maximize your income through retirement. Don’t rush this one.

Keeping Uncle Sam at Bay

For many, taxes are their largest expense. Sources of retirement income can make matters more complicated than they were during your earning years. Those in retirement need to manage Social Security, IRAs, Pensions, Required Minimum Distributions, etc. It’s more important than ever to plan ahead and actively manage your sources of income to reduce taxes. Simply waiting until tax season and reporting in hindsight could leave valuable dollars on the table (or more accurately in Uncle Sam’s pocket). Successful retirees take the time to do more than check the box of filing a tax return, and the extra time spent working on tax planning pays off. This should be AT LEAST an annual exercise.

It’s important to understand your goals, and create a tax strategy that aligns with them. This is more than just how and when you draw down on your investments. It also includes how your investment portfolios are structured. There are “Tax Smart” ways of investing, and these vehicles can include tax free investments, tax deferred investments, and tax sheltered investments among others. Creating an investment strategy that allows for asset and income protection as well as the achievement of cash flow and lifestyle goals, all while considering the impact of taxes and positioning yourself to reduce them is a must for those who wish to maximize the after tax spending power of their investments.

Taking Your Health Seriously

 I read an article once that noted genes are responsible for one third of the aging process. The other two thirds are directly related to lifestyle. I don’t think I need to explain the benefits of living a longer life; We all know it means getting to say and do what you want, with no consequences, right? (At least that’s what I’m looking forward to).

All kidding aside, it’s important to take care of yourself to make the most of your retirement. Regular exercise is important for everyone, but even more so for those entering retirement.

What about other health factors that are often overlooked beyond the need for regular exercise? It’s an unfortunate truth that as we age, our health worsens. The related payments for care can become costly. It’s important to examine your health insurance and know how this coincides with Medicare. If you currently have a high deductible health insurance policy, it may be a good idea to contribute to a Health Savings Account. These accounts allow for tax savings when you contribute, and tax free withdrawals if the money is used for qualified medical expenses.

Another consideration is Long Term Care Insurance. Examine your family history and make a decision that makes sense for you. Do you have a family history of dementia or other diseases? This may make long term care insurance a good idea. For many, the cost will outweigh the benefit, but as with all things related to retirement, planning will do wonders.

Creating an Estate Plan

I can’t tell you how many times I’ve worked on an estate tax return with an executor/personal representative who had nothing but boxes of old tax documents and statements to go through. It’s usually the son or daughter of the deceased that is stuck with this burden. Not knowing where things are and how anything should be handled takes an already stressful situation of losing a loved one and throws igniter fluid on it. For that reason, I tell all my financial advisory clients to get organized when you can. This will provide peace of mind that your estate is handled smoothly and in the manner you would like it to be. It’s a great idea to create a trust and meet with a lawyer to draft a will, durable power of attorney, living will, and health care proxy. These services are often far less expensive than you may think, and address the organization needs to prevent your family from being left in the lurch.

An estate plan is much more than determining how to divvy up any remaining assets. It’s about ensuring your family has access to the assets and information needed to complete required forms, tax documents, and obligations in a way that minimizes taxes, expenses, and stress when you’re no longer there to guide them.

Legacy planning is also important. While estate plans determine what you leave for your loved ones, legacy planning determines what you leave in your loved ones. How will you be remembered? Legacy is at the heart of thinking about your life.

Working With an Advisor You Can Trust

 I know I promised 5 areas of concern successful retirees address, but here’s a bonus. The sixth thing successful retirees do is work with a trusted financial advisor. It’s possible to do all of this on your own, but addressing all of these items in a way that sets you on the most successful path to retirement can be overwhelming. Unless you have a lot of time to research and stay up to date on the ever-changing tax law, there’s a good chance you’ll miss something. If you’re curious what your next step should be, or to hear more strategies and concerns that didn’t make the top five list, give us a call for a complimentary financial advisory appointment. You need to know where you are, where you want to be, and how to get there.

As a CPA and licensed financial advisory firm, we provide integrated tax and financial services from our family, to yours.