Especially coming from a financial advisory firm.
Well, that’s the reality… we need to “stop saving for retirement!”
We’ve always been told, “Save your money so one day you can retire” and therein lies a partial truth to all of this. Effectively preparing for retirement does take the discipline to set money aside for later. However, too many of us have adopted the idea that preparing for retirement simply means allocating money to a 401(k), mutual fund, IRA, or other retirement investment tool and letting it marinate slowly over the course of our career.
Won’t this provide me money in retirement? You ask. And the answer is yes. This method should result in supplemental income in retirement, but it won’t prepare you for retirement.
Let’s take a moment and really talk about some of the nitty gritty of retirement.
#1. It’s Saturday every day!
What day of the week do you think you spend the most money during your working years? You guessed it, Saturday. Why is that? Well, it’s the day we tend to be free to enjoy family, fun and entertainment. In retirement every day is a Saturday. Workdays are eliminated and weekdays and weekends blur together. There’s time to enjoy the finer things in life and we tend to do just that. But guess what? In doing so our weekly expenses can, and in most cases should increase. We didn’t spend decades of our lives in the workforce to be hermits in retirement. We should enjoy life in retirement. But to do so requires more than savings, it requires planning. How? You may ask. How about a guaranteed lifetime income?
#2. As we age, we become more susceptible to illness, injury, and health problems.
I know, not a fun topic. We all tend to think we will live happy and healthy until our very last day. We know the statistics don’t bear out, but we can’t help thinking it anyway. When it comes to planning for potential health deterioration, we have to remember, it’s not about us, it’s about our families. If we ignore the potential of our own future health requirements, we lay the burden and costs on those we hold most dear. A spouse, partner and/or children will be required to shoulder the weight of our shortsightedness. In some cases, a great option is a Health Savings Account (HSA), for others Life coverage with a rider is a better fit. Still others are best served with a combination of the two. What’s important is finding the option(s) that works best for you, so we don’t leave our health at the doorstep of our loved ones.
#3. We are not alone in retirement!
We touched on how our families can be impacted during our retirement, but they are not the only retirement partners we have. Whether we like it or not, we have another interested partner… the ever-present IRS.
Yes, the IRS is your retirement partner. Let’s think back to that wonderful retirement savings account we’ve diligently been investing tax-deferred money into. Guess what! Tax-deferred means the federal government is going to collect taxes when you withdraw the money. Even better they require a minimum distribution (RMD) withdraw of the money when we turn 72. Face it, the IRS is going to get its cut. Advanced planning can reduce the amount and provide additional money for us in retirement.
A common misconception is, “In retirement my tax bracket will go down.” It can happen, but typically not without careful planning. Once in retirement most people don’t have as many tax deductions. The kids are grown, the house is paid for and as a result a greater percentage of our income becomes taxable. Without advanced planning a decrease in gross income does not necessarily result in the reduction of net taxable income. Strategic planning and implementations are needed to reduce our tax burden during retirement.
Can we “Keep it Simple”?
As much as I would like to tell you it is, effective retirement planning isn’t simple.
Being financially prepared for retirement can’t just be about savings and building a nest egg to use in retirement. Because, let’s face it, our retirement years are going to be full of the unexpected as well as the predictable expenses. Financial preparedness for retirement is about leveraging our wealth creation years to both maximize growth and protect against loss.
When all we do is save for retirement in a planned retirement account, we subject ourselves to its very real limitations and risks. By “Planning” for retirement we can reduce risk while increasing cashflow once our wealth creation years are well behind us.
Who we can help…
Baker Wealth Strategies’ specialty is working with CPA’s and other tax and financial firms to provide additional resources and planning for their clients.
In unique cases we work directly with business owners and career professionals.
For the successful revenue producing business owner, there are tax savings options capable of saving money now while building a retirement future. For the career professional who has $250,000 or more in a retirement account there are options to grow, strengthen and protect your retirement future.
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