You’ve worked through the decades and contributed to your 401k diligently along the way. You’ve probably stayed up late using one of those online calculators to figure out if you’ve saved enough to retire. As you plan your retirement, here are six questions posed to Merriweather Mulé, , CFP®, CDFA®, a Senior Wealth Advisor at Beacon Pointe, who shares some tips to give you a head start and help you become a savvy retirement investor.
How would you recommend people begin to change their investment patterns over time?
You aren’t wearing the same clothes you did in your 20s, so why would you invest the same way? As we get [ahem] older, we tend to dress differently in our 60s than we did in our 20s. Our sense of style tends to be more conservative and less risky. As you prepare for retirement, you’ll need to review your portfolio the same way you would review your closet. Do these investments reflect your personal style/risk tolerance? Will they provide the income necessary to maintain your lifestyle over the next 20+ years? This is also crucial for someone who has lost her spouse or is recently divorced. Remember this: your spouse’s portfolio is not yours. Just like you would not dress out of his side of the closet, you need your investments to fit your risk tolerance and reflect your own personal style. A risk assessment is a crucial step prior to retiring. A Certified Financial Planner® can walk you through a risk assessment and a return needs analysis as part of your personal financial plan.
Speaking of income, what is your Social Security strategy?
While you are eligible to begin receiving social security at age 62 (or 60 if you are widowed), the longer you wait, the more your benefit will increase. You will take a decrease of 25% of your social security benefit if you begin receiving social security prior to your full retirement age (“FRA”). But if you delay your benefits until age 70, you will increase your benefit to 132% of your FRA benefit. If you are married, there are additional options to allow you to maximize your combined benefit. So, what’s the sweet spot? A social security analysis as part of a comprehensive financial plan can provide helpful insight about your ideal age to begin taking social security. Additionally, it will provide guidance on how to maximize your benefits based on your personal financial situation.
What should I know about my traditional IRA?
Don’t let your traditional IRA fool you. If you diligently saved in your employer’s 401k for decades, then bravo to you! But do not be fooled, as all of those savings do not belong to you. For every dollar that you withdraw from your pre-tax retirement accounts (401k or IRA), you will owe ordinary income tax to the government. When you are calculating the amount of income that you will need to draw from your accounts to replace your employment income, it’s imperative that you incorporate taxes into that equation. Ordinary income is taxed at a higher rate than capital gains income. Work with your CFP® and your tax advisor to come up with the right income strategy that will last you through retirement. If you don’t currently have a Certified Financial Planner® relationship, consider working with a CFP® to help you.
What do you recommend when it comes to Roth Conversions?
Take advantage of lower income with Roth conversions. When you retire, your income will most likely drop substantially. This provides an opportunity to convert portions of your Traditional IRA to a Roth IRA. While you will pay taxes in the year of conversion, once the funds are in the Roth IRA, they can grow tax-free, and all withdrawals are tax-free (as long as you meet the IRS’ Roth IRA withdrawal guidelines). A CFP® can provide a tax scenario analysis and work with your tax advisor to decide the ideal amount of Roth conversions annually. The best time to do Roth conversions is after you have retired, but before you begin taking social security, so ideally, you are in the lowest marginal tax bracket.
What should I do if I am charitably inclined?
Make your gift count. Giving can be impactful for charities as well as decrease a tax burden. Review your expected taxes before writing a check to your nonprofit of choice. Currently, with the high standard deduction, it may be beneficial to bunch multiple years of charitable gifts to offset a year of high expected taxes. Use highly appreciated securities in your portfolio to donate to a charity. The charity can sell the securities and either cash out or reinvest the proceeds in their own investment portfolio. You will avoid the capital gains on the security as well as receive an income tax deduction for the charitable gift on your taxes. If you aren’t comfortable giving all of it in one year, there are special account types to accommodate your situation. For instance, a Donor Advised Fund allows you to reap the benefits of the tax deduction in the year you give the gift while giving you control over the timing of the distribution of the gift to charity over future years. You can even pass this account from generation to generation as a personal charitable foundation. Charitable Remainder Trusts are another type of account that may be appropriate if you need current income from the portfolio. At your death, the account will pass to the charity of your choice. A good financial advisor will coordinate with your tax advisor and estate attorney to strategize the right type of account and the gift amount that will be most impactful for your personal situation.
What else do you recommend when it comes to retirement planning?
Don’t go it alone. We’ve only scratched the surface of retirement planning. As women, we’re accustomed to “doing it all.” The right advisor can provide financial education as well as investment, tax, insurance, and estate planning guidance during this transition to your new normal in retirement. Statistically, women live longer than men, so your money must last you longer. We recommend you look for an experienced, fee-only advisor that holds the Certified Financial Planner® designation and is a fiduciary. These characteristics are the key to finding an advisor that you can trust and has your best interests at heart.
At Beacon Pointe Advisors, we help women plan for and transition into retirement as part of our allWEALTH® approach to financial planning. Our allWEALTH® approach is designed to align your life and your wealth through a focus on three key areas: access to institutional quality investments, life and legacy planning, and impact initiatives. Please contact us to learn more about how we empower women to invest and plan for their retirement.
Important Disclosure: The information contained in this article is for general informational purposes only. Opinions referenced are as of the publication date and may be modified due to changes in the market or economic conditions and may not necessarily come to pass. Forward-looking statements cannot be guaranteed. Beacon Pointe has exercised all reasonable professional care in preparing this information. The information has been obtained from sources we believe to be reliable; however, Beacon Pointe has not independently verified or attested to the accuracy or authenticity of the information. The discussions, outlook, and viewpoints featured are not intended to be investment advice and do not consider specific investment objectives or risk tolerance you may have. All investments involve risks, including the loss of principal. Consult your financial professional for guidance specific to your circumstances.