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Healthy Cells is a local health magazine with most of the articles written by local professionals. People love to read about healthcare from their local health professionals. Each month includes a wide variety of articles on various topics.
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Investment Planning Throughout Retirement Part 2

While the working years are focused on accumulation for retirement, investment planning in the retirement years is focused on distribution. Last month we shared important factors to consider for a sustainable income throughout retirement, as well as principles for retirees who will not have an estate. This month, we are continuing with key considerations in financial planning for these years.


    Many retirees have assets in various types of accounts: taxable, tax-deferred (e.g., traditional IRAs), and tax-free (e.g., Roth IRAs). Given a choice, which type of account should you withdraw from first? Retirees who do not have an estate will plan differently from those who have estates.
   
Retirees who will have an estate
    For retirees who intend to leave assets to beneficiaries, the analysis is more complicated. You need to coordinate your retirement plan with your estate plan.
    If you have appreciated or rapidly appreciating assets, it may be more advantageous for you to withdraw from tax-deferred and tax-free accounts first. This is because these accounts will not receive a step-up in basis at your death as many of your other assets will, and your heirs could face a larger-than-necessary tax liability.
    However, this may not always be the best strategy. For example, if you intend to leave your entire estate to your spouse, it may be better to withdraw from taxable accounts first. This is because spouses are given preferential tax treatment with regard to retirement plans. As a beneficiary of a traditional IRA or retirement plan, a surviving spouse can roll over retirement plan funds to his or her own IRA or retirement plan, or, in some cases, may continue the deceased spouse’s plan as his or her own. The funds in the plan continue to grow tax deferred, and distributions need not begin until the spouse’s own required beginning date.
    For retirees who have a “stretch” IRA, you may want to take advantage of your ability to defer taxes over a number of generations. A qualified financial planner with tax expertise and access to specific software can calculate the tax savings and increased growth from this strategy.

Balancing safety and growth
    When you retire, you generally stop receiving income from wages, a salary, or other work-related activity and start relying on your assets for income. To ensure a consistent and reliable flow of income for your lifetime, you must provide some safety for your principal. This is why retirees typically shift at least a portion of their investment portfolio to more secure income-producing investments, and this makes a great deal of sense.
    Unfortunately, safety comes with a price — reduced growth potential and erosion of value due to inflation. Safety at the expense of growth can be a critical mistake for some retirees. On the other hand, if you invest too heavily in growth investments, your risk is heightened, and you may be forced to sell during a downturn in the market should you need more income. Retirees must find a way to strike a reasonable balance between safety and growth.
    One solution may be the “two bucket” approach. To implement this, you would determine your sustainable withdrawal rate (see above), and then reallocate a portion of your portfolio to fixed income investments (e.g., annuities) that will provide you with sufficient income for a predetermined number of years. You would then reallocate the balance of your portfolio to growth investments (e.g., a mixed stock portfolio) that you can use to replenish that income “bucket” over time.
    The fixed income portion of your portfolio should be able to provide you with enough income (together with any other income you may receive, such as Social Security and required minimum distributions from retirement plans) to meet your expenses.
    It’s important to maintain a balance that is within your risk tolerance range to maintain a quality of life that you won’t outlive. This is where it may be wise to seek the guidance of a financial professional that has hi-tech tools available. These advance software programs can run advanced scenario calculations to project financial security in retirement.
    Krista McBeath is a Chartered Financial Consultant, a Licensed Insurance Advisor, a Fiduciary, and an experienced tax advisor who specializes in financial planning, investments, taxes and insurance. McBeath Financial Group’s uniqueTechnology Empowered Advisor Method (TEAM) is a financial planning process that integrates the personal touch of a relationship-based advisor with high tech software tools to assess a client’s current portfolio and then analyze options from a variety of financial vehicles. Phone 309-808-2224 or email This email address is being protected from spambots. You need JavaScript enabled to view it. for appointment information.
   
    Advisory services are offered through McBeath Financial Group and Motiv8 Investments, LLC. McBeath Financial Group and Motiv8 Investments, LLC are not affiliated. Insurance products and services are offered through McBeath Tax and Financial Services, LLC. McBeath Financial Group and McBeath Tax and Financial Services, LLC. are affiliated.


 

 

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