Most of our parents started working around age 20 and retired when they were 65. Because life expectancy was shorter, the average retirement typically lasted about 10 years. That means people often had about 45 years to prepare for 10 years of retirement.
With medical advancements and healthier lifestyles, people are living longer. This means you may enjoy 20 or 30 years or more in retirement.
Back then, retirees counted on Social Security and company pensions. As a result, individuals didn’t need as much in personal savings.
Today, Social Security can’t cover most retirees’ primary expenses, and Social Security faces an uncertain future. Fewer companies offer pension plans; rather they shift the cost to employees with 401(k) and other types of retirement plans.
People must increasingly rely on their own personal savings and assets, so they need to consider how their savings vehicles will be affected by taxes. (Please read last month’s article on tax issues.)
Most people have more questions than answers when it comes to planning for retirement: How much will I need? How much will I have? How much do I need to save to cover the shortfall?
For personal savings, people want to know: Where should I put my money? How will I be affected by taxes?
We would all like the “tax perfect” retirement plan.
- Contributions are tax deductible.
- Accumulation is tax deferred.
- Distributions are tax free. With proper planning, you can minimize the effect taxes will have on your retirement income.
Right now you can’t have all three, but you can include 1 and 2, or 2 and 3, in your retirement planning because different assets have different tax treatments. I continue to ask my clients, “Where do you think tax rates are going in the future?”
Tax rates are currently at historically low levels, and tax diversifying your retirement income might be sensible. This where we can provide valuable assistance in helping our clients choose the right strategy.
There are three things that can prevent you from reaching the financial goals for your family. If you live, will you accumulate enough money? If you die prematurely, will your family have sufficient resources without you? If you become disabled, will you and your family be able to meet your financial needs?
These are serious matters that need to be addressed so you can develop a plan that is right for your current and future needs. We all desire a good life with good health and happiness, and free of stress. Look around — you will see that is not the case for too many people.
We can’t guarantee that proper planning will create this perfect life, but we can certainly tell you that it will help address the important issues to reach your best results.
