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Useful Tips to Optimize Your Retirement Planning

By Trilogy Financial
May 16, 2023
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Planning for retirement amid changing market dynamics can be stressful, especially as retirement age approaches. Fortunately, there are a myriad of ways to prepare for it, even if you plan to retire early.

OPTIMIZE YOUR RETIREMENT INCOME

One of our top tips is to optimize your retirement income by setting yourself up with a diversified portfolio that offers a solid return. If you are in your twenties, there is a big opportunity to let compound interest work its magic. If you are in your thirties or forties, compound interest may not be as lucrative for you, but there are still plenty of ways to maximize your returns.

Here are some of the different options available to help plan for retirement:

  • SEP IRA – a self-employed retirement plan known as the Simplified Employee Pension (SEP) IRA requires employers to contribute 100% of the accounts' funds and provide equal benefits to all eligible employees.
  • 401(k) – An individual retirement plan for which contributions are not tax-deductible, but withdrawals in retirement are tax-free.
  • Roth IRA – An individual retirement plan for which contributions are not tax-deductible, but withdrawals in retirement are tax-free.

Each option has its differences, so it is important to work with an advisor to identify which is best suited to your situation and your goals. There’s a lot that can go into your Life Plan and we are here to help.

happy woman on piggyback with man enjoying outdoors
Senior couple enjoying happy retirement lifestyle

DEVELOP A BUDGET AND SAVINGS PLAN

Budgeting can make a world of difference. If you haven’t already, establish an emergency fund. This will give you peace of mind and will help pay for any unexpected expenses that may arise. Once you’ve set that money aside, you can plan your monthly expenses, retirement contributions and more with the rest of the income you have.

As you develop this budget and savings plan to get you to your retirement goals, ask yourself the following questions:

  • What quality of life do I want to experience in retirement?
  • What medical expenses do I anticipate?
  • Do I plan on working during retirement?
  • Will I have a flow of income during retirement?

These are all important considerations and will help you develop an actionable plan to achieve the retirement lifestyle you dream of.

DETERMINE YOUR TAX BRACKET AND MINIMIZE YOUR TAXES

In retirement, taxes can eat into your available income, leaving you with less to live on. It's important to remember that taxes don't stop once you're retired. Our financial advisors are here to help guide you take steps throughout your working life to minimize your IRS obligations now and later.

The same basic tax brackets that apply to working taxpayers also apply to retirees. Determining your tax bracket in retirement is just like determining your tax bracket while you’re working – which  is determined by your filing status and taxable income (income minus deductions).

Common sources of retirement income that are taxable include:

  • Distributions from traditional 401(k)s and IRAs
  • Investment income
  • A portion of your Social Security benefits (in some situations)
  • Some pension income
  • Income from work (full or part time)

INVEST TO ADD ADDITIONAL CASH FLOW IN RETIREMENT

If building wealth is your goal, the stock market or other investment strategies are common options. Investments such as annuities, real estate investment trusts (REITs) and income-producing equities can offer additional retirement income beyond Social Security, a pension, savings and other investments.

DETERMINE THE AMOUNT OF RISK THAT IS APPROPRIATE FOR YOU

It is important to keep in mind that all investments come with risk. If you are young, you can probably tolerate more risk. If you are in your thirties or forties, however, you might benefit from taking a lower risk approach. This is because people in their twenties have more time to correct and mitigate losses. A financial advisor can help you decide if you would like to take a low-risk, slow-and-steady approach, or guide you through a high-risk approach with the potential of yielding higher returns.

PAY OFF YOUR DEBTS

It’s important to pay off credit card debt and student loans as soon as possible. Systematically chipping away at debt now, can have a significant impact on your future debts and purchasing power.

A mortgage can be looked at as both a good debt and a bad debt, depending on your goals. Many people choose to rent a home to avoid being tied to a mortgage, and others use that property as a cash-positive asset. Depending on your goals, it’s important to discuss each of these approaches with a financial advisor so they can help guide you through something that will ultimately benefit you and your family.

MAXIMIZE YOUR SOCIAL SECURITY BENEFITS

Navigating Social Security income can be complicated, but there are several ways to maximize your social security benefits, including:

  • Work for 35 years or more
  • Earn as much as you can right up until full retirement age (or past it)
  • If you can, wait until you are 70 years old to claim – this can increase your benefit by 8% a year beyond your full retirement age

The goal is to maximize the income you will receive from Social Security, but the answer for you will depend on your age, current income, marital status, spouse’s income, and the age disparity between you and your spouse. With all the complexities to Social Security planning, there is no substitute for meeting with a trusted financial advisor so you can best navigate your life in retirement.

CONSIDER ESTABLISHING STREAMS OF PASSIVE INCOME

It's important to remember that there are multiple ways to set yourself up for prosperity during your golden years.

These include:

  • Investing in real estate
  • Investing in the stock market
  • Starting an ecommerce business
  • Writing books
  • Earning royalties of any kind
  • Investing in collectibles
  • Investing in gold and silver

In short, it's best to invest in as many financial assets as you possibly can in order to establish streams of passive income so that you are not solely reliant on one source for your earnings and returns.

ESTABLISH MULTIPLE STREAMS OF INCOME

You may want to consider continuing to work during retirement. This provides many people with a sense of satisfaction and purpose, AND you will be able to keep your benefits.

The earlier you establish multiple sources of income the better. Ideally, at least a few of these would be passive.

You deserve to be comfortable during retirement, and planning for this phase of life right now will likely help you achieve your goals, perhaps even surpass them. You have worked hard for most of your years around the sun, and you deserve to relax and enjoy every moment on your own terms during your golden years.

Why Choose Trilogy Financial

Planning your retirement strategy is important but not something to stress over. If you’ve already started saving, one of our certified financial planners can help you optimize your savings, investing and risk approach so you can live the retirement life you dream. However, if you haven’t started planning for retirement yet, there’s no better day than today!

Our Advisors will work with you to develop a deeper understanding of your alternatives, pinpoint practical needs and make plans for the care you and your family deserve. Please contact us to start your retirement planning today.

happy senior couple holding hands and walking on summer beach
You deserve to be comfortable during retirement
Amplify Your Wealth Today!

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Planning a Tax-Free Retirement

By
Windus Fernandez Brinkkord, AIF®, CEPA
May 24, 2018

When planning for retirement, you need to look at multiple sources of income and be sure that some of the income sources are tax-free. The more, the better. So, how do you plan for a retirement income stream that minimizes overall taxation?

Four Instruments that Provide tax-free Retirement Income

Here are four great ways to provide yourself with tax-free.

  1. Roth IRA is a great retirement investment that can result in a steady stream of tax-free retirement income as long as they are considered qualified. However, you must qualify for an IRA and the requirements are adjusted year by year as is the amount eligible for savings. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.

If you do qualify, money put into a Roth IRA is taxed when you receive it, so it is not taxed again when it is withdrawn. In 2018, the eligibility requirements are:

  1. Single or head of household, earning less than $120,000 to fully contribute to a Roth IRA.
  2. Married filing jointly or a qualified widow(er) earning less than $189,000 to fully contribute to a Roth IRA.
  3. Married filing separately earning less than $10,000 to fully contribute to a Roth IRA. (Note that those married but filing separately can use the limits for single people as long as they have not lived with their spouse in the past year)
  4. Municipal Bonds and Funds provide income distributions not taxable by the federal government though they are may be subject to state income tax. Because they are not subject to federal income tax, interest paid on these bonds is typically less than taxable bonds.

There is no income limit to investing in tax-free municipal bonds and funds.

  1. Health Savings Accounts (HSAs) are available if your employer offers health insurance using an HSA. Combined contributions by the employer and employee to this account as of 2018 can be as high as $6,900.00 for qualifying plans.

Following the rules about which expenses are reimbursable, no taxes are paid on withdrawals.

In addition, the HSA funds and earnings can be held until retirement then uses to provide tax-free income by reimbursing the holder for past and current allowable expenses which include Medicare premiums.

  1. Roth 401(k) or 403(b) allow Roth contributions inside these accounts making those contributions and their subsequent retirement earnings, tax-free. These accounts are not subject to income eligibility limits but they are subject to taxes in the year that contributions are made.

Making the Most of Your Home

Another way to make a smart investment for your retirement is to pay off any mortgage that you have on your home before you retire which allows you to live in your home for the cost of property taxes and home insurance alone.

For many retirees, this is a huge reduction in their monthly expenses allowing the money be used elsewhere.

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Retirement Planning Advice

Three Buckets for Retirement Planning

By
Jeff Motske, CFP®
June 7, 2018

Your retirement savings, which is the means to your financial freedom, should be set up in the same way. There is no way to accurately predict what life will be like during the course of your retirement. Based on the climbing US debt, it is safe to assume that tax rates may increase. Unanticipated expenses may arise. Life is never predictable. Therefore, you need your money to be ready to work for you. In my experience, one of the best ways to ensure this is by utilizing three types, or buckets, of savings.

The first bucket is comprised of your traditional retirement investments like a 401(k), 403(b), or 457 plan. These plans are very popular and easily accessible as most employers offer them. Contributions grow tax-deferred and can be automatically deducted from one’s paycheck. However, what was a tax benefit while saving becomes a tax-trap once you retire as those funds will be taxed once they are pulled out. Another thing to consider is what the tax rate will be like at that time. I always ask my clients, “Do you think taxes will have gone up or down by the time you retire?” No one ever says down. Therefore, if all your retirement funds are in this first bucket, you are suddenly at the mercy of the government on how you utilize your retirement money. This is not financial freedom.

However, more buckets mean more options. Let’s consider that you also have retirement savings invested in a second bucket containing tax-free funds. This is typically comprised of Roth IRA’s or Roth 401(k)’s. Although Roth 401(k)’s are not highly promoted or even included in a lot of employer-offered plans, they are a very powerful saving tool. Your contributions grow tax-deferred and are distributed tax-free. With the addition of this second bucket or savings, you suddenly have a little more flexibility on how you access your money.

The final bucket is one that isn’t on most people’s radar. This bucket should be comprised of the investments in your portfolio of stock equities. The gains on these investments are taxed as capital gains. Historically, capital gains tax rates are significantly lower than typical income tax rates. If these investments are sold properly, they can provide another option when trying to manage how your money works for you.

As you can see, multiple buckets of retirement savings seek to provide you with freedom and tax control. If taxes are high, utilize your second bucket. If taxes are lower, feel free to dip into your first bucket. You can work with your financial advisor on what investments belong in which bucket, as well as to dial more or less into these buckets depending on tax rates and what your needs are. This flexibility is key to securing your financial freedom in retirement.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Investing involves risk, including the risk of loss.

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