Pre-Retirees & Retirees

Distribution Planning

It’s a whole different ballgame when you quit work to retire. Instead of a monthly paycheck coming in, you’re taking money out of savings for your living expenses. You will owe ordinary income tax on withdrawals from savings held in tax-deferred retirement accounts like 401(k)s, TSPs, 403(b)s or 457(b)s.

Starting at age 72, you are mandated by the IRS to take a RMD (Required Minimum Distribution) of a certain percentage of your tax-deferred retirement accounts each year by midnight on December 31^st.  Failure to take your RMD will result in a 50% penalty on the amount of the RMD in addition to taxes owed.

We recommend you have a complete retirement plan and start seriously planning around age 50-55 or so, in advance of retirement, when you can take action to potentially mitigate income taxes for the long-term. Your decision about when to file for Social Security can also have a big impact on your retirement income, and we help you optimize that. Plus, there are other strategies you can use to convert assets into a reliable income stream. Every retiree needs a custom retirement plan based on their lifestyle, goals and unique situation.

Bucket Allocations

In retirement, the bucket theory we use in our financial planning process at TFS takes on new meaning. The first decade or so of retirement, often called the “go-go years,” is the time when most retirees want to travel, have fun and participate in active lifestyle choices. Doing so requires accurate pre-budgeting into that first bucket. In the second decade or so, the “slow-go years,” retirees may find they want to do a bit less and stay home more. The last part of retirement, the third bucket, may bring more health and physical ability challenges, with more budget needed for healthcare—these are called the “no-go years.” At this point, some may become disabled or require long-term care—which is not covered by Medicare. (We have strategies for that.) Every phase and “bucket” of retirement is important, and our goal is to help you optimize, relax, feel confident and enjoy each one to its fullest.

Estate planning is the final bucket that we address. At The Financial Specialists, we partner with estate attorneys to help plan tax-advantaged wealth transfer to your heirs and/or your favorite charities. Our goal is to make sure all of your final wishes are addressed and legally documented, and that your legacy is preserved efficiently.

Retirement Planning

Inflation risk, interest rate risk, market risk, sequence of returns risk, longevity risk, long-term care risk—the long list of retirement risks can be daunting. Inflation risk means your money may not have as much purchasing power in the future. Interest rate risk means the cost of borrowing may increase, and the value of bonds you own may decrease. Market risk is especially worrisome, especially if the market enters a down cycle at the beginning of someone’s retirement while they are withdrawing money. This is called “sequence of returns risk” (kind of like compound interest in reverse), and it wiped out a lot of retirements in 2008. Longevity risk is the risk of outliving your money—and the risk of outliving a spouse’s income. When one spouse dies, one of your Social Security checks goes away—something you must plan for.

Retirement risks are something we focus on at The Financial Specialists. Effective retirement planning addresses these risks and many more. We recommend you start the retirement planning process 10+ years in advance of when you actually plan to retire.