Because a good retirement plan is not separate pieces, but a holistic strategy

Effective retirement planning goes beyond the investments and numbers related to the various accounts a person has. First, it’s about understanding the extent of your future financial needs and goals. And from that framework, it’s about putting all areas of the plan together so that they complement each other and function as an integrated whole.

At times the financial world can seem segmented to clients, with professionals designated as experts in only one area of ​​the plan: investments, insurance, taxes, wealth planning, etc. But holistic financial planning includes and ties together every aspect relevant to the retirement strategy. Analyze and try to optimize each part of a person’s plan by making those pieces work together consistently.

One way to think about holistic planning is that most people have several pieces that make up their retirement puzzle, and they all have to fit together to form a complete picture. But I find that talking about holistic planning in seminars is enlightening to people because they haven’t really thought about it in that context. Here are the basics in most people’s retirement situations:

  • Social Security
  • Tax planning
  • Medicare
  • Investments (401 (k) plans, Roth IRAs, unskilled accounts, etc.)
  • Income plan (draw up a strategy on how to use your money)
  • Real estate plan

All those pieces have to work together. You cannot maximize your situation if you are looking at each of these aspects in a vacuum.

Putting the Pieces Together: Starting with Social Security

You have to consider social security in the context of three of the points mentioned above: investments, income plan, and tax planning. You also need to understand how long you will be working and the needs of your spouse, especially if one of the spouses may have a shorter life expectancy. So the question is how your social security will be taxed. Most people have no idea what determines whether your social security will be taxed or not.

Sometimes people think they need social security for income, but maybe they take it too soon and get hit with extra taxes as a result. When you look at social security in relation to a person’s investment accounts, this helps determine their strategy for when to turn on the social security tap.

Let’s take a hypothetical example. A couple thinks they will start taking social security right when they retire, but once a holistic planner takes a picture with them and considers all the other parts of their retirement plan, it makes more sense for a spouse to delay social security payments. social until the age of 70. This is based on how long they still plan to work, on other income streams and also on their investments. At the same time, the other spouse may want to start receiving Social Security immediately, which could allow them to stop withdrawing money from their 401 (k), thereby lowering their taxable income and letting their investments grow for a period of time. longer time.

Each piece affects taxes

You have to look at the tax efficiency part in terms of making every aspect of a retirement plan work together. When saving for retirement, it’s a good idea to diversify how and when your savings will be taxed. This can help you successfully overcome the retirement uncertainties – how much of your income will be taxable and what your retirement tax rate will be.

Tax planning becomes complex as your wealth grows, which is why a holistic financial planner works in tandem with your tax advisor and real estate attorney. The idea is that they take a proactive approach to minimize taxes in different areas of the retirement plan. Putting a couple in a higher tax bracket, for example, makes it more difficult for them to perform Roth conversions in a tax-efficient way (Roth conversions are taxable in the year of conversion). One of the reasons for Roth conversions is the tax efficiency it gives you in retirement, as qualified distributions of Roth funds are tax free. A couple who are able to perform Roth conversions for several years can significantly reduce their overall tax burden in retirement, perhaps to the point where the vast majority of their social security is not taxed following retirement. Plus, Roth money is tax-free for your heirs as well, which ensures you don’t leave a tax burden for the next generation.

We recommend that you make sure your investments are structured to be as tax efficient as possible. I also come across a lot of people who have unskilled accounts like stock portfolios and don’t use tax-managed strategies. It is generating a lot of dividend income and people who have mutual funds don’t really have control over the capital gains activated in their accounts. It all comes down to their tax return, plus the income they live on. This can drastically change their tax bracket and make it more difficult to make tax-efficient Roth conversions.

Typically, when people think about planning their retirement income, they think about using their bank accounts and unskilled money first, then their IRAs and / or 401 (k), and finally their Roths. It’s not a bad strategy, but a simple tweak can help: At the same time, you’re using your bank money and other funds, converting some of your IRA and 401 (k) funds into a Roth is a sensible idea.

The bottom line

Remember, if all the pieces of a retirement plan work independently of each other, you won’t get the best of each. Each part affects another part. Many people do not consider retirement planning in that context and it is vital to do so to maximize retirement success.

If you currently feel your retirement plan is just a bunch of individual pieces, a quality holistic planner could potentially add great value to your overall retirement.

Dan Dunkin contributed to this article.

Senior Partner, Creative Finance Group

Brian Quick is a senior partner and financial advisor to Creative Financial Group. Growing up with a stockbroker father and lifelong teacher for mother, he developed a love for the financial markets at an early age. With over 30 years of financial services experience, Quick focuses on tax diversification planning through tax-efficient / tax-free income strategies, comprehensive financial planning, and risk management-focused financial security planning. He earned a bachelor’s degree in business administration from Indiana Wesleyan and went on to the American College of Financial Services to earn his professional designations as a Certified Life Underwriter and Chartered Financial Consultant in 2001.

The appearances in Kiplinger were obtained through a public relations program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger has not been compensated in any way.

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