Smart Retirement Planning Ideas

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Categories: Blog

Retirement planning can be complex.  Let us make it simpler.

Average life expectancy continues to increase, and many people are now living into their 80’s and 90’s. It is important to review your asset allocation on a regular basis and adjust as your goals and lifestyle change.  A portion of your account should be in growth assets to maintain purchasing power over time.    

Comprehensive retirement planning and careful investment management are more important than ever! There are some simple steps you can take to tip the scales in your favor. 

1. Reduce your investment expenses.   Any costs related to your investments reduce your return. The easiest way to increase what you earn is to simply reduce your costs.  Mutual funds and exchange-traded funds, (ETF’s) have fees you may not be aware of or familiar with.  A fund’s expense ratio represents the management fee that is paid to the fund company. This fee does not appear on your mutual fund statements, so you have to look for it. This fee is in addition to what you pay your financial advisor.

There can be other fees, too, such as transaction fees and loads. Always take these fees into consideration when choosing mutual funds and ETFs. With so many products out there, it’s likely there is a lower-cost, similar option.

If you have a financial advisor, ask him or her to review your funds, the management fee associated with each one, and the reason for choosing that particular fund.  There may be a valid reason for not utilizing the lowest cost option, but it should be explained.  A small difference in fees, compounded over time, can have a large effect on the value of your portfolio.   

It’s also important to know how your financial advisor is paid.  Does he or she get paid commission or a percentage of assets under management?  Does the manner in which he or she gets paid match how you’d like to partner with your advisor?

2. Invest in Tax Deferred Vehicles. It’s not what you make, it’s what you keep that matters. Also, reduce the amount of taxes you have to pay, for example, make sure your investments with the highest potential tax liability are in your tax-deferred accounts (such as a 401(k) plan or a traditional IRA).    Assets that generate income or short-term capital gains may be best held in these accounts because the tax is deferred.    Other accounts may hold more tax-efficient assets such as long-term growth stocks or municipal bonds.   These small adjustments may decrease your taxable income which keeps more money in your pocket. 

3. Make Catch-up contributions. Investing in tax-deferred vehicles can make a significant difference over time for wealth accumulation.  The limit for a qualified plan contribution is currently $19,500 with a catch-up amount of $6,500 for those age 50 or older by year-end.   Over time these contributions can make a tremendous difference in life during retirement. Annual contributions are limited so you need to be aware of the changes in limits every year.  The compounding effect over time is significant and one should make as much of a contribution as possible. I’ve never spoken to anyone who regretted making consistent and substantial contributions early, but I have spoken to those who regret NOT doing so!     

3.  The HSA Account.  Another tax saving vehicle is the Health Savings Account (HSA). If you are enrolled in a high-deductible health plan, you are eligible to contribute to an HSA with pre-tax money.  For 2020, Limits are $3,550 for individuals and $7,100 for families; Catch-up contribution is $1,000 for age 55 and older. This money can grow tax free and be held in the account to be used for qualified health care expenses in retirement.   It’s also portable which adds to the flexibility to this type of account.

4. Increase your Social Security benefit by waiting.  For every year you delay claiming Social Security past your full retirement age, which is typically 66 or 67, you can get an 8 percent per year increase until you are 70.  This is a significant difference over time and probably worth seriously considering.   Ask your financial advisor to assist you with the options.  

We educate and collaborate with our clients.  Clients should always feel they can ask questions, be involved, and continue to learn through the process of planning for their financial future with someone they trust.  

Susan W. Beard, Vice President, CRPC®, CTFA

Senior Wealth Advisor

Old North State Trust, LLC (ONST) periodically produces publications as a service to clients and friends.  The information contained in these publications is intended to provide general information about issues related to trust, investment and estate related topics.  Readers should be aware that the facts may vary depending upon individual circumstances.  The information contained in these publications is intended solely for informational purposes, is proprietary to ONST and is not guaranteed to be accurate, complete or timely.