6 secrets to your best retirement plan
by Stewart Welch.
Let’s face the facts…most people are not saving enough for their retirement. If this is you (or someone you know), here are some tips for helping create the best retirement possible with the resources based on the resources you do accumulate:
Trifecta Investment Strategy.
At the center of our Trifecta Investment Strategy is post retirement income tax control. Most people think of retirement planning on a single plane- traditional retirement accounts such as 401ks or IRAs. After all, you get a tax deduction for your contribution and tax deferred growth on earnings and growth. But during retirement, you have little control over taxes because all withdrawals are taxed as ordinary income. With the trifecta investment strategy, you also create a personal investment account and, if possible, a Roth IRA. With these three accounts in place, we can do trial income tax returns and decide where best to withdraw funds in order to minimize taxes for this and future years.
Downsize your home.
At retirement, if you are not debt free, we often recommend that you downsize your home and use your equity to purchase a smaller home with no debt. If this is not possible, consider selling your home and renting instead. A lot of people don’t think of renting but it can be a good strategy. No maintenance, no yard upkeep, no property taxes, much lower insurance costs and reasonably predictable expenses.
Home Bonus Strategy.
Assuming at retirement you own your home debt free, consider using a reverse mortgage to create a guaranteed lifetime monthly payment to you. Once the home is sold, any equity goes to either you or your heirs. No matter how much you receive in tax free payments, you (and your heirs) can never owe the mortgage company money.
Growth Strategy with a Safety Net.
This is a portfolio management strategy whereby you divide your investments into two different ‘buckets’. The safety net portion goes into a combination of money market savings, CDs and bonds and is enough money to cover five to ten years or more of annual cash flow needs (what you need to pay your bills). The remainder is invested in a diversified basket of blue chip dividend-paying stocks. As your stocks grow over time, be sure to ‘replenish’ the money in your safety net bucket.
Keep making money.
Retirement is overrated! If you like your work, your best retirement strategy is to not retire. Often you can negotiate more time off for less pay and your company is happy to retain a seasoned employee. Another choice is to start a new career. I’ve seen lots of people turn a hobby into a money-making venture during retirement. They are having a blast and making some money to supplement their retirement income. In retirement, a little extra money can go a long way.
Delay Social Security.
If you have good health, delaying Social Security can be a great strategy. Full retirement age for most retirees today is age sixty-six. For every year that you delay, you receive an 8% increase in your monthly payments. This can boost Social Security payments by more than 30% for the rest of your life. And remember, Social Security payments are periodically adjusted higher for inflation.
If you’re still working my best advice is ‘save, save, save’ (using our trifecta strategy) and pay attention to keeping your debt under control. If you can, avoid borrowing money to purchase things that will go down in value and set a minimum target of being debt free by your retirement date. By taking control of your financial destiny, you can help create a great retirement experience.