Can I Have a Tax-Free Retirement?

By
Diane Zing, CSA
June 11, 2018
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Paying taxes is inevitable. The key to being as efficient as possible about how much one pays in taxes requires careful consideration of the big picture. And while many people simply want to know if they can have a tax-free retirement, it really starts with being clear about how and when taxes get paid…and to defining what a “tax-free retirement” actually means. For example, if someone is striving to have income during retirement that is tax-free AT THAT TIME, then there are a plethora of investment and insurance products out there that could help defer taxes on earnings, and potentially, have tax-free withdrawal benefits for some types of accounts. But that doesn’t mean retirement is “tax-free”.

Let’s clarify what a few of the most common types of taxes are:

Income Tax – taxation on earned income can occur on many levels; local, state and federal. The amount a person would have to pay varies greatly on their situation. And, there are various types of tax credits that could affect the amount of taxes that would be paid on income. Any earned income that is deferred into a qualified retirement account generally means that taxes on that income won’t get paid at the time it is earned, but when that income is taken at a later date, during retirement, taxes are paid at that time. The idea that paying taxes on income later, when one might be in a lower income tax bracket, might prove more beneficial. But a) there is no guarantee what the tax rates will be in the future, and b) there may be several other factors with a person’s overall taxation that could affect what is perceived as a benefit. A tax professional is the best person to help folks evaluate what kinds of strategies are best for their overall situation. At the end of the day, SOME form of income tax will be paid, either when it is received upon earning, or when it is withdrawn from a qualified plan “down the road” in retirement.

What can be done to possibly reduce these taxes? Speak to a tax professional about what tax credits might apply, and also review with them if itemized deductions can play a role in reducing taxation.

Sales Tax – taxation occurs on state levels for various goods and services that get purchased. The percentage of taxation is usually based on the price of said goods and/or services. But that percentage charged can vary greatly from state to state, or even within different municipalities. There are a few states that don’t have any sales tax on most goods and services.

Excise Tax – taxation that is applied to specific types of goods; gas, cigarettes, beer, liquor, etc. These are typically nicknamed as “sin products”. Taxes received for these particular products are generally used to help raise money for bringing awareness to the potential dangers of these products.

What can be done to manage sales and excise tax? Not much. These types of taxes are very hard to “manage”. Changes in lifestyle; consumption of goods that fall within this category, will obviously affect the amount of sales taxes paid.

Property Tax – taxation that is applied to property owned. Taxes received tend to go towards local municipality needs. The amount of property taxes charged is usually based on a percentage of the value of the property.

What can be done to manage or alleviate property tax? Renting instead of owning might prove beneficial with alleviating property tax. However, there may be tax benefits also lost by being a renter instead of an owner. Again, a tax professional is best for helping to calculate what the tax benefits are for both scenarios.

It might not be possible to have a completely tax-free retirement, but by working with a financial professional and a tax professional, the ability to strategize investments and manage how taxation occurs could prove very beneficial. It’s not just about saving and investing…it’s about being as savvy as possible with the decisions along the way.

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By
Jeff Motske, CFP®
November 26, 2018

Money is a commonly held taboo topic, like politics and religion. We just don’t feel comfortable talking about them – especially to people we care about. That’s because these topics are tied closely to how we view ourselves. These topics also garner a lot of judgment, and the last thing we want is to be judged on something that we feel is intrinsically linked to our intelligence or sense of maturity. Yet, by practicing a few simple tips, we can start tackling the taboo topic of family finances and get on that path to financial independence.

Be Honest

It is human nature to want to hide things we may not be proud of or want to avoid. Perhaps you charged a bit too much to your credit cards or haven’t saved as much as you planned for all of your family’s goals. You may want to avoid addressing such issues, but those who are part of your financial household need to know the honest, unvarnished state of your finances. Trying to hide the facts will just compound your issues when they come to light – and they will.

Be Frequent

Don’t just talk about money when money is a problem. That’s when stress levels are high and emotions are frayed. What needs to be a level-headed discussion can quickly escalate into an emotional shouting match. Instead, conversations about finances should become routine. If you schedule a monthly financial date night with your spouse, the frequent exposure will minimize the surprise and anxiety from these talks. Ultimately, there will be fewer surprises and more planning to help when unexpected or hard decisions need to be made.

Be Open to Feedback

You and your spouse are a team. Teams succeed by working together towards the same goals. Teammates, though, don’t always see things the same way and may have different approaches to the same objective. That’s why it’s important to get your spouse’s input on how your finances are being managed. Not only does your spouse’s input ensure you’re working towards the same goals, but different perspectives can also provide multiple solutions to financial issues. Most importantly, your spouse feels heard and validated, which is a precious thing to give to the one you love.

Be Non-Judgmental

What causes many to shy away from discussing finances is the idea that they will be judged for things they did or did not do with their money. Did you mismanage your funds and refrain from saving sufficiently? Were you too risky with your investments or not risky enough to provide for the household? To avoid the judgment, most will just avoid talking about their finances all together, which doesn’t often have good outcomes. Avoidance doesn’t help financial situations – it often just prolongs the mess. To help your spouse open up, it is beneficial to allow them to speak openly and freely and to listen without judgment.

I do believe that it is imperative to take the taboo out of talking about money with your spouse. Both of you should foster frequent and honest financial discussions, free of strife and judgment. Doing these things will allow you to solidify yourselves as a strong financial team and set you on your path for collective financial independence.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

By
Steve Hartel, MBA, AIF®
April 24, 2018

Congratulations. You’ve decided to work with a financial professional to help improve your financial situation. How do you find a good one? Unfortunately, that’s harder than it sounds. There is a huge barrier between people seeking good financial advice and professionals offering it. Advisors can be found in the yellow pages (Millennials, you might have to Google that), on various online sites, by answering incoming phone calls, by asking your friends and neighbors, or any number of other ways. Personally, I believe a referral or introduction from an existing client is the best way, but that could be another entire article. Here are some suggested questions you should ask a prospective advisor.

  1. Start by asking yourself what kind of help you think you want and/or need

Are you just seeking help with your investments? How about someone who will be the “quarterback” of your entire team of professionals (tax preparer, estate attorney, bookkeeper, banker, investment manager, etc.)? Are you looking for someone who simply suggests things for you to go do by yourself (what I call the “travel agent” model), or someone who will give you advice and then help you carry it out (what I call the “Sherpa” model)?

The answers to these questions will determine what kind of professional to seek out. I know some of you are thinking, “Wait—aren’t they all the same?” Trust me; the answer is an emphatic “NO”! One of the best ways to determine what type of professional someone is, is by asking about their credentials.

  1. What are your credentials and what do they mean?

Anyone can call themselves a financial advisor. A stockbroker, a life insurance agent, a mutual fund sales rep, an annuity salesperson, a banker, a mortgage broker. Seriously, there are no rules for the title Financial Advisor. The title Financial Planner, on the other hand, has very definitive rules. There are only two kinds of people who can legally call themselves a planner. One group took classes, passed some exams given by an industry group, and received the Certified Financial Planner (CFP®) designation. The other group took classes, passed some exams by a governmental group, and received their Series 65 or Series 66 registration. These folks are called Registered Financial Planners, although that moniker hasn’t caught on yet the same way the CFP® has. Both of these groups can legally charge you a fee for giving you advice.

You might also encounter professionals who received a Series 6 registration (this allows them to sell you a mutual fund) and/or their Series 7 registration (commonly called the stockbroker license). You will also encounter people who have some combination of these.

Someone who only has a CFP® can give you advice but can’t help you execute it. These are the “travel agents” I referred to. This might be a good choice if you want to pay for advice but then go do everything yourself. Another example might be people who hire a personal trainer at the gym one time to teach them the right exercises to do; then they go do them by themselves.

Someone who only has a Series 6 or 7 registration can sell you products for a commission, but they can’t give you any advice. Let’s call them “luggage salespeople.” This might be good for people who don’t want professional advice, make their own decisions, and simply need to buy financial products in a transactional relationship with a salesperson.

Someone who has their Series 65/66, or has their Series 6/7 and 65/66, or who has their CFP® and Series 6/7 and/or 65/66 can perform the “Sherpa” function of going on the journey with you and helping you implement the advice. These are good choices for someone who recognizes the value of professional advice and knows they need a little extra help with actually getting things done (or want that extra accountability). Think people who hire a personal trainer at the gym and see them week after week. In my experience, clients of these professionals make the most consistent progress toward their long-term goals.

  1. How will I be charged? How do you get compensated?

Sometimes those are the same question and sometimes not. Does the professional make a commission when you buy a product? If so, how much is it? Do they charge an hourly fee, a monthly fee, or a one-time flat fee? Is the professional paid a fee based on the size of your invested assets? What is that fee?

If you are buying products, are there any fees built into the products themselves? How much? Are the fees for the product clearly spelled out or are they buried internally?

Will ALL of your fees be clearly itemized on your statements? Ask to see an example.

  1. What services do you provide?

This should line up with your answers to Question #1. Don’t make any assumptions here. Make sure the service you are seeking is actually provided by the professional you are interviewing. The professional might want to sound like they can do everything for you. For example, a stockbroker can open an IRA for you, but that’s not the same thing as doing retirement planning for you. Be clear.

  1. Are you a Fiduciary?

Due to a recent regulatory change, this is the new industry buzzword. There are multiple standards of care in the financial services industry. One is the “suitability” standard. Professionals who do not give advice are held to this standard. They need to show that the product is appropriate for someone in your situation, but they don’t have to disclose their compensation or prove that the product they recommended is actually in your best interest. If there were two products that both accomplished the same thing, but one resulted in the professional receiving higher compensation, the professional doesn’t have to tell you that.

The other standard is the “best interest” standard. People held to this standard are fiduciaries. They must always act in the client’s best interest. If they sell you a product, they must demonstrate that it is in your best interest rather than their own.

Conclusion

I’m a Sherpa, so I naturally believe that’s a better choice for most people seeking professional help with their finances. My fees are very clear and, they appear right on the statement or contract signed by the client. I think hidden fees should be avoided at almost any cost. My clients hire me on an annual basis to be their DecisionCoach. I give them advice, I help them make better financial decisions over time, and I help them implement the advice. Depending on the client, I might be helping with organization, cash flow, investment management, budgeting, retirement planning, college planning, income planning, tax mitigation, asset protection, insurance, advanced medical expense planning, estate planning, and much more. Are you looking for a professional like me?

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