Financial Planning for Retirees

Brenna speaking with two elderly people

Financial Planning For Retirees

Retirement doesn’t mean your financial picture is static. Opportunities for proactive tax planning, investment planning, and fostering your legacy are everywhere. 

“Am I going to be okay?” This is the most common question we hear at our first meeting with retirees. Ensuring contentment in retirement is all about knowing you have enough; enough for the necessities, enough for unexpected changes, and enough to support the legacy you want to create. Not to mention the everyday challenges of managing inflation, market volatility, and healthcare costs. Effective financial planning can help you anticipate and address these challenges and maximize opportunities. Above all else, a qualified financial planning partner can provide peace of mind.

Your Questions Answered

Retirees face unique challenges and opportunities in planning.

Which accounts should I draw from for income in retirement?

Retirement income is unique to you, but in planning, we’ll typically start with the income you already receive. This might include Social Security, pensions, and required minimum distributions (RMDs). Analyzing the right time to claim Social Security, the most appropriate pension selection and options for your RMDs are all central to our planning process.

If these sources of income don’t provide enough for your living expenses and goals, we’ll want to assess your investment accounts. If you have Traditional IRA / 401(k) accounts, every dollar you withdraw is taxable as ordinary income. After-tax investment accounts will be taxable at capital gains rates. Roth IRA withdrawals are tax-free. Together, we can determine the best blend of what to pull from each account to mitigate your tax liability and maximize your options for accomplishing your retirement goals.

What tax planning opportunities do I have as a retiree?

Aside from thoughtful income planning, as mentioned above, you can consider tax-efficient investments like municipal bonds, tax-deferred annuities, and index funds to help reduce tax liability while providing income. All three come with advantages and disadvantages that we should weigh before deciding.

If charitable intent is part of the legacy you’re creating, there are several opportunities to do so in a way that creates a win-win for you and the organizations you want to support. If you’re over 70.5, you can utilize Qualified Charitable Distributions (QCD) to distribute up to $100,000 directly from your Traditional IRA to your charity of choice. You avoid the tax liability of the withdrawal, and your charity receives 100% of the gift. When you are subject to required minimum distributions from this account, the QCD strategy can, at least in part, take care of that requirement. Donor Advised Funds and gifting appreciated assets are two other opportunities to explore.

How should I invest my retirement nest egg?

Like much of the guidance in financial planning, ‘it depends’ is the only appropriate broad-brush answer here. Three basic ideas to keep in mind when considering your investments in retirement are:

  1. Diversification: holding a variety of investments, including stocks, bonds, and alternatives, can help ensure your entire portfolio isn’t subject to the same market risk.
  2. Rebalancing: regularly rebalancing your portfolio can ensure your investments are aligned with your goals and risk tolerance. Once or twice a year is a typical rebalancing cadence, barring any significant market activity.
  3. Only take as much risk as you need to: in retirement, capital preservation becomes an important aspect of investing. Carefully discussing your unique situation with a qualified, fee-only, CFP® professional is a great start to ensuring your money is in alignment with your needs.

How can I support my legacy?

Regardless of the size of your investments or estate, building a legacy is something we all do every day. There are financial and nonfinancial ways to establish your legacy. Charitable gifting can be accomplished using bequests, family foundations, scholarships, or direct transfers, each with its benefits and limitations. Aligning your investments with what you care about in the world, whether that’s socially responsible companies or specific causes, is another option.

Ultimately, how we live our lives is the strongest reflection of our values and the legacy we’re creating. Assessing the legacy your current approach is building, developing a philanthropic philosophy to guide future giving, and understanding the why behind your areas of focus are significant parts of what we do with our retired client families.

Life is Always in Transition

Proactively planning for life’s transitions is one of the best ways to get the most out of the financial planning process. The following questionnaire is meant to spark your thinking around the transitions you’re facing in retirement and the ones that may be on the horizon.

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