What are your retirement income needs?

Your retirement strategy is framed by your time horizon, or the time between your current age and expected retirement age. The more time you have between today and your expected retirement, the more risk your investment portfolio can withstand.

If you’re in your 30s, you can tolerate more risk and have ample time to plan for retirement. As such, you should have the majority of your assets in high-risk high-reward investments, such as stocks. Though stocks are more volatile, they have historically outperformed other securities, such as bonds, over the course of multiple decades. It’s wise to focus on returns that outpace inflation so that you can maintain your lifestyle during retirement.

As you move closer toward retirement age, your investment strategy will begin to transition toward income and the preservation of capital. You might begin shifting toward a higher allocation in lower-risk and less volatile securities, such as bonds. You have less time to recover from any losses, and your financial goal has transitioned to maintaining a comfortable income to live on past your working years.

Your Wealth Manager can help you create a multi-stage retirement plan. By breaking up your retirement into different periods, you can integrate various time horizons and their corresponding liquidity needs, and rebalance as needed to optimize your allocation strategy.

Do you have the right investment time horizon?

Your investment time horizon is an estimation of how long your assets need to last. This is commonly based on your life expectancy, but you also need to account for dependents, such as a younger partner.

This graph illustrates your probability of living to a specific age if you’re 65 years old today. We recommend that you factor in the longest realistic time horizon that you’re likely to face. As time progresses, it’ll become increasingly difficult to make up for poor retirement planning.

Your investment time horizon will be affected by two costs: distributions and inflation.

It’s a common error to underestimate the impact of distributions and inflation. 

• Distributions can affect the long-term revenue potential of your investments. 
• Inflation can erode the value of your investments, especially if your portfolio is heavily weighted toward fixed-income products like bonds. 

If not properly accounted for, distributions and inflation can decrease your purchasing power over time.

How can I minimize the retirement tax hit?

As a retiree, you will likely rely on a few different sources of income; most commonly, these are Social Security benefits, distributions from IRAs and retirement plans, and funds from savings and other investments. Unfortunately, you’ll still continue to pay taxes in retirement. Luckily, there are ways to minimize what Uncle Sam takes from you in your golden years.

ESTABLISH RESIDENCY IN A TAX-FRIENDLY STATE. 

Alaska, Washington, Wyoming, South Dakota, Nevada, Texas, and Florida levy no personal income tax. New Hampshire and Tennessee don’t tax wages, only interest and dividends, but both are set to eliminate those taxes soon.

Moreover, states are federally prohibited from taxing residents on retirement benefits earned in a different state. For instance, earning a pension in California or New York and relocating in retirement to Florida or Texas avoids state tax on this income.

AVOID OR POSTPONE RMDS.

If you are at least 72, you aren’t required to pay taxes on required minimum distributions (RMDs) from your IRAs and other retirement accounts if you transfer the funds to a charity. Your IRA trustee or custodian must transfer the funds directly to an IRS-approved public charity, and you must receive written acknowledgment from the charity for your contribution. There is a $100,000 annual limit per individual. If you are married, each spouse has a separate $100,000 limit.

We help you plan ahead for RMDs from IRAs and other retirement accounts, Social Security, and Roth IRA conversions. We’ll find your best combination of taxable and tax-advantaged income streams taking into account the tax disparity between capital gains and qualified dividends, regular income and tax-free accounts.

CONSIDER DEFERRED ANNUITIES.

You can postpone the need to take RMDs by investing in a special deferred annuity. You can use up to $135,000, but no more than 25% of your account balance, from your IRA or 401(k) to buy a qualified longevity annuity contract (QLAC) within the retirement account. Funds allocated to the QLAC are exempt from RMD calculations.

DELAY SOCIAL SECURITY BENEFITS. 

If you delay the receipt of benefits until age 70, you’ll earn additional credits to boost your monthly benefits at that time. The benefits are either fully tax-free or are included in your gross income at 50% or 85%, depending on your other income.

DON’T FORGET THE ESTATE TAX.

Consider our estate tax planning services to help you avoid the 40% tax rate that applies to taxable estates. By being mindful of the estate tax and structuring your gifts and bequests in a tax-efficient way, you’ll enjoy the largest amount possible to spend toward making your retired years the most memorable time of your life.

You have your ideal retirement vision in mind, and we’re here to help you get there. We’ll help you create an informed retirement strategy, including:

• Budgeting and cash flow forecasting well into your 90s
• Planning which assets to tap and when for income, tax-efficiency
• Investment risk and return targets that reflect your needs
• An estate plan that provides for your loved ones and establishes your legacy
• If you have a business – a succession plan that works for all involved

As life ebbs and flows, we can make the tactical moves and update your plan to match your goals and priorities along the way.

Proper planning is a huge factor in achieving your desired retirement lifestyle after years of working and saving. It isn’t just about building a portfolio—it’s about securing a happy and comfortable future.

If you have any questions or would like to learn more about Prosperity Financial Group, please fill out the form below and we’ll get back to you shortly. We look forward to hearing from you.