David Faskas

David Faskas

This is part 2 of a two-part article series discussing retiring more successfully. The first part, “Saving for a Successful Retirement,” was published on Nov. 14.

One of the most important things that you can do to set yourself up for success in retirement is to develop a solid financial plan. There are many planning strategies that a Certified Financial Planner professional can assist you with. Here are a few that I consider to maximize a client’s retirement success.

One retirement strategy that resonates with most is to plan to pay less in taxes, by paying the lowest tax rate possible. This is often easier said than done, and requires careful planning over a number of years. Do you have a year of low income? Perhaps you expect to make more money in the future from raises or required minimum distributions from an IRA, or perhaps you just expect that taxes will be raised in the future to pay for the massive spending packages being proposed and government debt already incurred.

If you are in a lower tax bracket now compared to where you expect to be in the future, a Roth Conversion can be a great strategy. With a Roth Conversion, you pay tax at your current rate and are able to allow your Roth IRA to grow, with all earnings tax free if the rules are followed. There are added benefits as well, such as no distributions being required during the original account holder’s life.

Social Security is a significant fixed income source for many retirees. You paid into Social Security for many years, so it is important to maximize your hard earned benefits when you finally begin drawing. Unfortunately, 34% of people claim Social Security benefits early at age 62, locking in a lifetime of reduced benefits. Waiting until full retirement age increases benefits by 30%, and for every year you delay past full retirement age until age 70, your monthly benefit increases by 8%. The decision gets more complicated when you have an ex-spouse or deceased spouse record that you may file on, or other factors like pensions from jobs you did not withhold Social Security from. Discussing the risks and opportunities of different filing strategies with a financial advisor can help you maximize your hard earned benefits.

For those fortunate enough to still have a pension, you may have some critical choices to make at retirement, such as a lump sum payout versus pension for life, and further choices of single life or joint and survivor annuity options. With so many decisions, it is important to analyze your options. A single decision can make tens of thousands of dollars of difference, and there is no single best option for each retiree. Be sure to seek assistance as the right choice can easily pay for itself several times over.

Annuities have long been a popular strategy, but often come with concerns of high commissions and conflicts of interest. More recently, commission-free annuities are becoming more popular. A fee only advisor will recommend these, and not “sell” them. A broker typically sells annuities. By stripping out commissions, these products often have more advantageous rates, which can result in better returns to annuity holders. With low interest rates on bonds, commission-free annuities can be attractive alternatives. Annuities may provide you income for life and allow participation in market growth depending on the annuity’s structure. Annuity products are extremely diverse, so it is paramount to fully understand any annuity before adding it to your portfolio.

There are many more planning strategies that may be available to you in your particular situation, and it is important to talk to a Certified Financial Planner professional that has experience in these areas to facilitate your path toward a successful retirement.

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David Faskas is a CFA and CFP Professional with KMH Wealth Management. He specializes in investments and portfolio management. He is the Chief Investment Officer, Chief Financial Planning Officer, and a managing member of the firm.

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