What are the hidden obstacles that may hinder your retirement? 5 main points to consider
Whether your retirement is more than a decade away or approaching, thorough planning is recommended because without it, you may face major challenges that may not be your top priority right now. In the future, these problems may affect the way you want to live.
You may encounter hidden obstacles on your way to retirement, so it is important to learn more about potential roadblocks and take appropriate steps now to reduce their impact. You could say there is a “gimmick” – an acronym that outlines five important elements to consider in your retirement plan:
“The trick” … “T” for taxes
Most people don’t take their retirement taxes into account as much as they should. If they have large amounts of money in pre-tax accounts, as many do with traditional 401(k)s, that money will be taxed when they withdraw it. Minimum Required Distributions (RMDs) at age 72 can cause tax issues if the issue is not addressed beforehand.
Transferring some of that pre-tax money into Roth IRAs or Roth 401(k) can be an effective way to reduce your tax burden in retirement. The “trick” is to do the conversion strategically over a number of years and know how much to convert each time. The amount transferred is taxable each year, but Roth IRAs and Roth 401(k)s are tax-exempt on withdrawal starting at age 59½, although accounts must also be kept for at least five years. There is no requirement to start taking a Roth IRA, while there is with a Roth 401(k), but account holders can convert that into a Roth IRA.
Qualified charitable distributions (QCDs) are another way to reduce the risk management department’s tax burden. You can create a QCD by having your IRA custodian pay a portion of your RMD or all of your RMD to an eligible 501(c)(3) charity. The total maximum annual contribution to a QCD is $100,000, and to work a QCD, you must be at least 70 years old.
“R” for risk tolerance
Ask yourself: Do you think we can go through another financial crisis like we did in 2008? A major downturn could happen at some point, and if it did, how much would you lose? More specifically, how much Can you lose? Whatever that number is, you should be comfortable with it.
When working with a financial planner, deal with your tolerance for risk and try to balance extreme risk with extremely conservative. You will most likely want to see growth in your investments, but you will want to have a protective mindset for some of your assets as well.
“I” for investment mix
Investments are like different types of tools that are suitable for certain types of jobs. For example: If you are cutting a bush, do not use a shovel. A common problem in the financial industry is that you have some people who are basically trying to sell you a product, and you end up trying to shovel the papers with a shovel. They are trying to sell you something, while an independent advisor focuses on investments that are based on your specific financial goals.
However, different products can serve you depending on what you want. Bank-type products, including savings accounts, money market accounts, and certificates of deposit (CDs) won’t lose money, but they probably won’t grow well. Another type of tool is stock market based accounts. It can grow very well and is used for long-term growth. But they will most likely not be safe; You can’t guarantee that you won’t lose money at some point, and being successful in stocks often means sticking with them for the long term.
The third tool includes insurance-based solutions: indexed annuity or indexed life insurance. There can be reasonable growth in these compounds and they are safe, contractually guaranteed not to lose money. (The guarantees are backed by the financial strength of the issuing company. Products are not insured by the bank or the FDIC) but there is usually a time commitment involved.
“C” for costs
Clients must have full disclosure of how advisors and account managers’ compensation, commissions and fees work. What’s the point of those people watching your money? Some of these fees are clearly displayed, as with a mutual fund account. But others are hidden or not revealed publicly. Some financial professionals take a percentage, and others work on the power of attorney. As a consumer, it is helpful to know how consultants and account managers are paid.
“K” is knowledge gaps
We live in an age where many consumers like to try to do things themselves, but financial planning is not like a home improvement video where you can learn how to add a room to your home at half the cost of a contractor. Your financial future and retirement planning are concerned with special care that an experienced professional can handle. Consumers plan their retirement for the first time, but veteran planners do it for a living and must know hidden obstacles and how to help maneuver around them. Clients can benefit greatly from the expertise of a consultant.
Working on your retirement portfolio now can help you see hidden obstacles early. To get where you want to go, you need to know what can stop you and the right moves that will help make your retirement journey as smooth and enjoyable as possible.
Dan Duncan contributed to this article.
Investment advisory services are available through AE Wealth Management LLC (AEWM). AEWM and NuVenture Financial Group LLC are not affiliated companies
Investing involves risks, including potential loss of capital. No references to [protection benefits, safety, security, lifetime income, etc] It generally refers to fixed insurance products, and never refers to securities or investment products. Insurance product guarantees and annuities are backed by the financial strength and claims-paying ability of the issuing insurance company.
Our company is not affiliated with or endorsed by the United States government or any government agency. Neither the Company nor its agents or representatives may provide tax or legal advice. Individuals should consult with a qualified professional for guidance before making any purchasing decisions.
Please remember that transferring an employer plan account to a Roth IRA is a taxable event. Increasing taxable income from a Roth IRA transfer can have several consequences, including (but not limited to) the need for additional tax withholding or estimated tax payments, loss of certain tax deductions and credits, and higher taxes on higher Social Security and Medicare benefits premiums. Be sure to consult a qualified tax advisor before making any decisions about your IRA.
CEO and President of NuVenture Financial Group
Bob Horn is CEO/President of NuVenture Financial Group. Horne, a 20-year veteran of the financial services industry, including seven years as an investment advisor representative, worked as assistant vice president and branch manager for HSBC before focusing on retirement planning. He has passed Series 6, 63, and 65 securities exams and holds a Florida Life, Health, and Annuity license. Horn is also a certified Certified Retirement Professional (RICP®).
Appearances at Kiplinger were obtained through a public relations program. The columnist received assistance from a public relations firm in preparing this article for submission to Kiplinger.com. Kiplinger is not compensated in any way.