What We Do
Before making any recommendation, we gather information to see the big picture of your unique situation. By addressing your greatest concerns first, we begin a process together.
We develop strategies for optimizing your invested assets while minimizing possible loss along the way.
Through an ongoing relationship with you, we update and adjust your personal planning analysis regularly to keep you on track and moving toward your financial goals.
Frequently Asked Questions
How can I lower the amount I pay in taxes in my retirement?
There are some very practical ways to reduce the amount of taxes paid in retirement (legally of course!). Rather than give a long answer here, we will address the three main areas typically discussed to address this question below. The three areas involve Social Security, converting retirement accounts to Roth IRA, and writing off business expenses in retirement pursuing a something you are passionate about. We know how to help.
When should I draw my Social Security Benefits?
Delaying your Social Security benefits is the first practical way to pay less in taxes while you are alive, and as long as Social Security is taxed the way it is now. You may not know that Social Security was not always taxed. It’s possible that how it is taxed in the future will change, but today, planning can be done to ensure that you are paying the least amount possible based on current laws. Right now, up to 85% of your benefits may be taxable depending on when you draw, combined with your income in retirement. With proper planning, many people enjoy a healthy income in retirement, such as $85,000 per year, while paying 0% in Federal taxes each year. Delaying benefits until age 70 also ensures that you are maximizing the amount you receive each month while living, which for most people means that they need less to live on from other sources.
Is it really possible to pay 0% in Federal taxes in retirement?
Yes! Keep in mind, that the amount and type of assets someone has determines this possibility. This is a rewarding goal for retirement planning when attained, not only because nobody enjoys paying more taxes, but because it truly means that all the money is yours. People often fail to consider that when you have money invested in the market, or in any IRA other than Roth, you are only looking at a number that is fictional until it is realized. Meaning, until you pay the taxes on the money and it is in your account, it is not your money. The number can be depleted significantly overnight if it is in the market, and it will be taxed when you want it. If you are interested in paying 0% in Federal taxes in your retirement, register for an upcoming workshop, or schedule a time for a complimentary consultation with our retirement planning team.
Is it a good idea to convert my Traditional IRA to Roth?
The previous question briefly touched on this concept. Converting Traditional IRA assets to Roth IRA assets is another way to lower the amount of taxes paid in your retirement. This is a scary thing for many people to consider. You must pay the taxes to convert to Roth now, which can seem painful at the time. Here is the benefit: with a long window anticipated for life expectancy, your Roth assets can grow and grow while you enjoy as much or as little of it as you like without the government requiring you to make withdrawals. It is easy to see why this is becoming a popular part of retirement planning.
Here is the breakdown: if you convert $100,000 of Traditional IRA this year, and you are in a 24% tax bracket (a healthy income by today’s tax laws), you will have $76,000 of Roth IRA which is able to grow. This is the real number that is your money.
Note: Conversion to Roth requires that the account remain untouched for the first five years so that the growth during that time is not taxed when withdrawn. After five years, all growth and the $76,000 in this example are 100% tax free. If the money grows at 7% for 6 years, your Roth account would be at $122,039.39 and this is all your money to be used however you like.
Why would anyone convert to Roth in the first place?
If you believe you will be on this earth for a considerable amount of time, there are two reasons to convert to Roth:
1)The government requires minimum distributions (RMDs) when you turn 70 ½ years old. A Roth account has no RMDs and continue to grow indefinitely while you are alive without taxation (except for the above note involving growth during the first five years following conversion).
2)Roth assets do not factor into your Social Security taxation each year, which means that if your only income in retirement is from Social Security and Roth assets, you do not pay anything in Federal taxes.
Can I lower taxes paid if I have a pension?
Some people have healthy company or government pensions and may also have healthy Social Security income. In these instances, there may not be much that can be done to reduce taxation. This can be a good problem to have because of the security of having lifetime income. However, over the years we have met several retirees who, through following their passions, have established businesses to address social needs or simply to pursue dreams, which create tax deduction situations. For this to lower taxes, it might mean that the business is not making money. However, if a retiree has a solid business plan, then a loss should only be temporary. Conversely, a solid business plan guided by the strengths and abilities of someone in retirement in pursuit of a passion is likely to offset the pain of paying additional taxes due to an increase in income.
How can I keep my assets from being depleted from an extended care event?
This is the part of the conversation where we discuss the good news, and the bad news. First, the good news: people are living longer! So, what’s the bad news? PEOPLE ARE LIVING LONGER!
The likelihood that you will need extended care is increasing as medicine and care continue to extend human longevity in our society. Current statistics state that 1 out of every 6 women will develop Alzheimer’s. For men, it is 1 out of 11. For a married couple, the chances become about 1 in 4 when you do the math:
1/6 + 1/11 = 25.76%
11/66 + 6/66 = 17/66 = 25.76%
There is a ¼ chance that a couple deep into retirement will get Alzheimer’s. That is a reality that many of us know. The chances that an extended care event will occur for people in retirement is high, but the chances of a serious diagnosis of events such as stroke or heart attack are around 75%.
Now, when we look at the potential for our nest to be depleted in retirement due to a health-related reason, there is no room for a lack of planning. Insurances to protect against these virtually inevitable events can appear to be too expensive, leaving many retirees without any protection at all until they run out of money and qualify for Medicaid. Medicaid is a government social welfare program. It is not what we recommend as part of retirement planning when avoidable. Choosing a plan which will cover a portion of the cost of long-term care or a major diagnosis is a cost-effective way to protect your nest egg without depleting it when something happens to you.
My Financial Advisor helped my nest egg grow and has now moved most of my assets into bonds because they are safe. Is there another option?
Moving investments into bonds because they are safer is not retirement planning. Rather, it is simply reallocating where your money is invested. Not only are there other options, but depending on your desires and needs in retirement, there may be better options.
Advisory services offered through Foundations Investment Advisors, an SEC Registered Investment Adviser