The 9 Top Retirement Strategies That You Need To Know For 2018
Having a solid retirement strategy is one of the most proactive measures that you can take to ensure you live a life of financial abundance during your retirement years. Although there are many strategies that you can implement to achieve these goals, sometimes the best strategy is learning from others in order to make their strengths into your own. Here we have assembled nine entrepreneurs and academic professionals who have built successful nest eggs for themselves, and now share their strategies in order to help you do the same.
Mulberry Lane Advisors
The top strategy for 2018 would be maximizing your potential tax-free income in retirement. Strategies for this include Roth IRA’s, Roth 401k’s and overfunding cash value life insurance policies. All of these require that you pay taxes on the principal (initial) investment and, typically, in the year you make the investment. The issue with Roth IRA’s is that many do not qualify after their AGI goes above a certain limit (phase-out for singles start at $120k/yr and $189k/year for married, filing jointly.) Roth IRA’s contributions are limited to $5500/year ($6500/yr for those over age 50.) The disadvantage with Roth 401k’s is that at this time most employer 401k plans do not provide this option to their employees. The yearly contribution limits for these plans are $18500 and $24,500 for those over age
The advantage of using your cash value life insurance is that there are no AGI or contribution limits. This makes it very attractive to people with incomes over $250k/year. The issue becomes ensuring that the amount of insurance death benefit is large enough so that your contributions do not go over the federal government’s limits to make the policy a Modified
Endowment Contract (or MEC). Doing this would make the distributions in retirement a taxable event.Another issue with using cash-value life insurance is that you need to be
relatively healthy. Typically, if you, or your spouse, cannot get a
Standard health rating, or better, the internal insurance expense will eat up
most of the interest you would earn, as well as eat up more of the premium
in the early years.
Lastly, another issue with using cash-value life insurance is that you
preferably find a policy that uses indirect (sometimes called non-direct)
recognition when taking out policy loans in retirement. This means that the company
will issue interest and dividends on the full amount of cash value in
your policy. Direct-recognition means that the company will reduce its
interest and dividends by the proportionate amount of cash value that you’ve
borrowed from the cash value in your policy. Also, the fact that one
is considered to be taking loans against the death benefit makes the amounts
received a non-taxable event.
Neponset Valley Financial Partners
As a 40 year veteran in the financial services industry who has assisted many clients during their accumulation phase of their working life and now the distribution phase, my experience has led me to a few conclusions. Two mantras I have preached are flexibility and control. The following narrative describes a few different types of investment accounts that address taxes and the risk of running out of money.
First, while the new tax law leaves alone most aspect of retirement plans, tax rates have changed. While the recent tax law represents the biggest change since 1986, there have been many tweaks that have impacted retirement planning. As such, I am a strong believer in funding different types or pockets of accounts than will ultimately be used to generate retirement income. First and foremost particularly for younger workers, I would contribute to either a Roth IRA or Roth 401(k) if your employer’s plan allows such an account.
While you lose the current tax deduction for the contribution, the long term benefits particularly when projected out over a 20, 30 or longer time period are huge. Additionally, NO distributions are required at age 70 1/2 which provides tremendous flexibility when meeting your retirement income needs and tax planning at the same time. Also, everyone who is in a position to do so should contribute the maximum to their 401(k) plan. And if you are unable to contribute the maximum, at the very least, you should contribute the amount that allows you to benefit from the maximum company matching contribution. By not taking advantage of the company match, you are leaving free money on the table.
Second since we are living longer, annuities that provide guaranteed income for life have gained much more attention. These annuities can be variable annuities with some type of guaranteed lifetime withdrawal benefit or an equity indexed annuity that may not provide the types of returns that a variable annuity may produce but will ramp up the income base of the annuity to, again, generate guaranteed lifetime income.
Third, everyone should be maximizing their retirement plan contributions. Since many individuals conduct side businesses such as consulting, they can establish and fund a SEP-IRA in addition to any contributions they make to a company sponsored plan. For older individuals who own their own business that generates a significant cash flow and may be frustrated by the limitations of a 401(k) plan, they may wish to consider a cash balance plan which is a type of defined benefit plan that were popular a few decades ago. The contributions that a business owner may be able to contribute can be very significant.
For those individuals who have maxed out their 401(k) contributions and earn too much income to contribute to a Roth IRA, they may wish to consider a non-deductible IRA up to the allowable limits. At some point in the future, they may convert this IRA to a Roth and pay the appropriate taxes. This strategy represents a back door method of funding a Roth IRA. However, you should consult with a tax advisor about converting it to a Roth since there may be some issues if the individual maintains other IRAs..
Lastly, I encourage most clients to plan on delaying the onset of Social Security until age 70. The benefits to both the recipient and their spouse can be enormous. Of course, not everyone can wait that long but the difference in benefits over one’s life expectancy and their spouse can make a huge difference in the amount of retirement income they will receive.
There are some innovative financial products to meet customers where they are and assist in improving their financial health by providing daily financial systems that help to build resilience and take advantage of opportunities. These can be used to stay on track for retirement, especially by automating the process.
For example, Digit automates savings by monitoring spending and income patterns to set aside small amounts of money that won’t be missed. Digit’s goal is to help users achieve long-term financial health. The intent is to provide a service that fits into the everyday busy lives of people so they can achieve financial health with minimal effort. Imagine putting small enough amounts into your retirement account that they wouldn’t be missed; they will add up, though, over time.
Forging Bonds of Steel
Each month, tens of millions of investors review their retirement statements with hopes of seeing their balances increase due to rising markets. Whether they tear open envelopes from their financial institution or download electronic statements, the thought process is the same.
Whether the investor has 12,17 or 26 years till retirement, the idea of hoping to see increases in account balances month after month is basically irrational. Why? The answer is simple, yet counter intuitive. Say you believe that you will retire in 12 years and that you are paid twice a month. That figures out to 288 more paychecks before you cease working. If you participate in an employer sponsored retirement plan; such as a 401(k) or 403(b) plan you might be contributing to the plan 288 more times –basically every 2 weeks for the next 12 years, because a portion of each of your paychecks is directed to you plan account.
So the investor has 288 more opportunities to buy whatever investment funds they chose to invest in. So, here is the golden question. Assuming a rational investor – would they wish to buy additional units of their investments at prices that have been marked up or down in price. After all, we are all familiar with the idea of accumulating more units of our investments. Whether those units are measured in barrels, tons, pallets, units or shares, the idea is the same.
The investor would want to accumulate MORE. So, does the rational investor want to purchase more at higher prices or lower prices? One answer might be, that they wish to accumulate more units, or barrels at lower prices because they can accumulate more of them than if the prices were higher. To paraphrase the wonderfully intuitive Nick Murray; “I don’t want the markets to go up yet, I’m not done buying!” We all want to stock up on things when they are on sale. If you are stocking up on cans of tuna for the winter, wait for a sale, not when the cans are marked up in price.
My hope as you read this is to inject a little sanity in the age old discussion that no one wants the markets to go down, just up. I for one expect that from time to time I will be offered the opportunity to purchase additional barrels, units and shares at bargain basement prices. As a patient investor, I know I will be offered the chance if I just keep things in perspective.
As the famous investor Sir John Templeton was fond of saying; “Bull markets are born on pessimism, grown on skepticism, mature on optimism and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.”
Or maybe Warren Buffett’s words will strike the right cord for you. Long ago, Ben Graham taught me that ‘Price is what you pay; value is what you get.’ Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.
Newport Wealth Advisors
I can think of no better recommendation than starting with a retirement plan
! There are a million ways to get from point A to point B; figuring out
the best plan for you and your family is the key to success.
The planning process is ongoing. Dwight Eisenhower was quoted as saying,
“Plans are useless, but planning is everything.” Once you’ve created a
financial plan, you aren’t done. No plan is going to go perfectly. The value of a plan is to track progress and save you time in the long run. Maybe you get to retirement a little sooner. Maybe your planning helped you avert a disaster. Maybe planning helped eased your mind or focused you on the task at hand.
Planning, in the end, will help you determine the amount of risk you should
take, the amount of money to save every month/year, the amount of insurance
(if any) that you should have, etc. Wealth isn’t accumulated accidentally in most cases. Wealth stems from a series of good habits. Many of the wealthiest families I know developed good habits that grew out of an initial flight plan for retirement.
Avoid any fees that have no long-term benefit. High fees can eat up your account
value and are the quickest way to unnecessarily depleting your savings
. Fees can be beneficial if they are for something specific (i.e.:
riders, benefit, guaranteed returns) however simple management fees can be
destructive over extended periods of time. The biggest diversity I can suggest is being diverse in your tax codes. You do not want to have all of your savings or retirement income wrapped up in future commitments to the IRS. Save diversely in your tax codes first, then look
at different investment strategies for each code. You should also have at
least one savings vehicle that is stable, guaranteed, and protected from a loss
that is intended for RETIREMENT. The money intended for retirement should
be secured if you want a secure financial future.
Barnum Financial Group
One of the first things people should do is to have a vision of what they want their retirement to look like. Do you want to travel? Own a vacation home? Leave a legacy to their family? The sooner you start planning – and saving – the better able you will be to reach your retirement money and savings goals.
After you have the vision, now it is time to create a budget and build the savings into it. Determine what your fixed expenses are, such as rent or mortgage, real estate taxes, utilities, insurance, car loans or lease payments. Now determine what your variable or lifestyle expenses are, such as entertainment, vacation, dining out, gifts and other leisure activities. Make sure that you include an amount for saving for your goals, whether it be buying your first home, or a vacation home, putting money aside into an employer sponsored retirement plan like a 401k or 403b.
Make every effort to keep to this budget. It’s very easy to get sidetracked and have potential obstacles pop up and derail your efforts. Examples of these obstacles are career interruptions, unforeseen illness or injury, debt – such as credit card or personal loans, and certain life events. A family should have between 3 and 6 months’ worth of savings for these types of emergencies. Having sufficient emergency or rainy day funds available will help you avoid these obstacles and navigate around them.
What we find is that having a vision written down, and creating a budget will allow you to make a firm commitment to achieving success in reaching your goals. That’s why most dreams do not come true, there is not firm commitment to making visions come true. Having a budget and sticking to it with an overall purpose in mind, will give you a much higher probability of success, than just winging it.
People who are nearing retirement age but don’t have enough money saved to
sustain their quality of life and pay for rising health care costs need to
take a close look at the money they currently spend and their assets.
For example, owning multiple properties is a financial drain. Selling a
second home (or moving into it permanently as part of the retirement plan and
selling the main home) can help pad a retirement fund and reduce future expenses
. Maintaining a large house may require more effort and be more expensive
than necessary, as well. The time to move into an accessible and
easy to care for home is *before you need to.
For many people, working a few extra years can add the extra money they need
to see them through a long retirement. If putting off retirement is an option,
be sure to contribute as much as possible to retirement accounts during
the last few years of full-time work.
Don’t overlook the value of a life insurance policy. Even a term policy with
a face value of more than $100,000 is worth an average of $20,000 in a
life settlement if the policyholder is over the age of 65. Selling a life insurance
policy through the life settlement process yields more money than cashing
it in or surrendering the policy to avoid paying premiums in the future.
Many seniors don’t know about the life settlement option and they leave behind
tens of thousands of dollars that could go toward increasing their quality
of life in retirement.
FourStar Wealth Advisors LLC
If available, always invest in your company’s 401k. The ideal level of savings in one’s 401k is 10-15%. In the beginning, start with a number you feel comfortable with, which can be as little as 1% if money is tight. Moving forward, have the account automatically increase 1-2% each year on your anniversary. This will allow you to increase contributions without creating too much havoc on your budget. Most importantly, if the company matches any amount, make sure to contribute equal that amount from day one. Thus, if company matches 3%, then start at 3% and add 1-2% each year moving forward.
If you are a bit more comfortable with a higher amount, it’s best to start with 5-6% and add 2% per year until you reach 15% at which point you can maintain that contribution level throughout your employment. If you switch companies often, as a lot of millennials do (average tenure at a company is 3.5 years), you might want to consider starting at 6% and adding 2% per year.