The first step in planning your retirement is thinking about retirement goals and how long you have to meet those goals. Next on the list is to look at the different types of retirement accounts that are available for you to help accumulate the money needed to fund your future. As this money is saved, you will need to invest in it to see it grow. Unfortunately, there is a surprise that no one likes: taxes. If you’ve received tax deductions over the years for the money you’ve contributed to your retirement accounts, a significant tax bill awaits when you start withdrawing those savings.
Timing Your Retirement
The best way to time out your retirement is to break it up into different components. A multi-stage retirement plan must integrate various time horizons, along with the corresponding liquidity needs, to determine the optimal allocation strategy. As a general note, rebalancing your portfolio over time as your time horizon changes will be beneficial. As an example we could say that a parent is wanting to retire in two years, pay for their child’s tuition when they turn 18, and move to Florida. Looking at this scenario to form a retirement plan – the best strategy would be broken up into three separate periods. Two years until retirement (contributions are actively being made to the plan), saving and paying for tuition fees, and the move to Florida (regular withdrawals to cover the living expenses).
After-Tax Rate of Investment Returns
Everything is always dependent on the type of retirement account you are holding. Investment returns are typically taxed, but this could be different depending on the retirement account held. The actual rate of return must be calculated on an after-tax basis. Determining the tax status when you begin to withdraw funds is a crucial component of the retirement-planning process.
Another key step in creating a well-rounded retirement plan is estate planning. Each aspect of a well-rounded retirement plan requires expertise from multiple sources, such as lawyers and accountants, in that specific field. Life insurance is also an important part of an estate plan and the retirement-planning process. Ensuring that you have both life insurance and a proper estate plan protects your assets from being distributed properly. A carefully outlined plan will aid in avoiding an expensive and often lengthy probate process.
Need to know more about making your retirement plan? Reach out to your local agent today to learn more.