Do you have a retirement plan or just a bunch of uncoordinated accounts?

Inflation hit a 40-year high of 8.5% in March. Some people don’t take inflation into account when planning for retirement, but the recent major price spike should make us all look at inflation more carefully.

Because the cost of everything is rising, it may mean you have less money to save for your retirement. So the question becomes, how can you generate more revenue to offset inflation?

What many people don’t consider is how inflation would affect them in retirement if it exceeded 2% or even more for long stretches of their retirement years. It is important now to take a look at the next 10, 15 and 20 years with the possibility of inflation being higher than normal and determine how this would affect your financial situation. How could you do things differently with your money? How can you better prepare your current asset allocation for higher inflation?

The tax angle is another factor to consider when planning your retirement. Income tax rates were reduced in the Tax Cuts and Jobs Act 2017, but go back up when the legislation expires at the end of 2025. There have been other proposals to increase taxes, such as capital gains tax and income tax. tax rate on higher incomes.

Therefore, you have to ask yourself this question: if your tax rates were to increase, how would that affect your retirement planning? If one spouse dies, the surviving spouse will no longer be in a joint tax bracket, but rather in a higher, single filer tax bracket. And looking at the debt our country is racking up, including the trillions in stimulus spending over the past two years, many people think a tax hike is on the way.

Whatever happens over the next few years in terms of inflation and taxation, you can control certain financial factors. But many people don’t know them. It’s because too many people don’t prepare properly. And not preparing for retirement can mean preparing for failure.

A wallet is not a plan

We believe that a well thought out and organized retirement plan includes consideration of all sources of income, investment structuring, health, tax and inheritance. This also includes knowing how your accounts should be managed based on risk tolerance, taxes, etc.

A wallet is do not a map. Too many people just have a bunch of accounts, but no coordinated plan for how these accounts can work together and complement each other to provide potential growth and stability, especially in times of volatility.

Let’s say I’m looking at a person’s portfolio, which can include retirement accounts like an IRA or 401(k), pension if they’re lucky, annuity, savings, and brokerage accounts. But often when you ask them why the money is being handled a certain way, they don’t know.

It’s time to find out. And a fundamental way is to reverse engineer the plan. Ask these questions:

  1. What is your cost of living now?
  2. How much income do you actually need right now during your working years?
  3. What will your cost of living be in retirement? Remember that you might end up spending more than you think, especially in the beginning, because in retirement every day is Saturday.
  4. How much income will you need in retirement?

Once you have determined the income figures, you need to add inflation on an annual basis. This will give you a starting point for the income you will need in the year of your retirement and in subsequent retirement years.

Taxation, and its effect on your money in retirement, is another good reason to consult a professional planner to assess ways to reduce your tax burden. One avenue to consider is to convert part of a traditional IRA or 401(k) to a Roth IRA or Roth 401(k). Roth withdrawals are tax-free when withdrawn after age 59½, as long as the assets have been in the Roth for at least five years. Keep in mind, however, that when you make a Roth conversion, you are taxed for the amount you convert in the years you do so.

Some additional considerations

Here are some other areas to focus on when developing your retirement plan:

  • Social Security. Determine the best options for your specific situation. If you are married, when should each of you start receiving benefits? How much of social security will cover your monthly expenses?
  • Personal property. These include savings, your home, stocks, retirement accounts, cash value of life insurance policies, rental property, annuities, and more. When it comes to investments, it’s important to assess how many years you have left before retirement to determine how money can be managed in terms of risk tolerance.
  • Health care, including health insurance choices and long-term care planning. Longer lifespans and rising health care costs are key factors in retirement planning. Health savings accounts are becoming an important component of retirement savings plans.

Rising inflation has always been a reality, but its rapid rise reminds us why inflation needs to be factored into your retirement plan. Retirement taxes take some people by surprise. Additionally, we may experience more recessions and market corrections.

The bottom line is that having a plan helps you better prepare against factors that are beyond your control and helps you have peace of mind financially. You don’t want to spend your remaining working years, and especially your hard-earned retirement years, worrying about what you should be doing. By then, it may be too late.

Dan Dunkin contributed to this article.

Fee-based financial planning and investment advisory services are offered by Wolfgang Capital LLC, a California State investment adviser. Insurance products and services are offered by Wolfgang Financial Group LLC dba Wolfgang Financial and Insurance Agency (CA LIC # 0K07551). Wolfgang Capital LLC and Wolfgang Financial Group LLC are affiliated companies. Neither Wolfgang Financial Group LLC nor Wolfgang Capital LLC provides legal or tax advice. You should always consult a lawyer or tax professional regarding your specific legal or tax situation. Wolfgang Capital LLC, Wolfgang Financial Group LLC is not affiliated with or endorsed by the Social Security Administration or any government agency.

CEO, Wolfgang Capital

Zachary W. Herzog is a representative investment advisor and the CEO of Capital of Wolfgang, a California Registered Investment Advisor. Zach is dedicated to helping retirees and pre-retirees protect their finances as a Licensed Life and Health Insurance Agent (CA LIC # 0H085434) with Wolfgang Financial and Insurance Agency, an insurance planning company in the greater area. of Southern California.

Fee-based financial planning and investment advisory services are offered by Wolfgang Capital LLC, a registered investment adviser in the State of California. Insurance products and services are offered by Wolfgang Financial Group LLC dba Wolfgang Financial and Insurance Agency (CA LIC # 0K07551). Wolfgang Capital LLC and Wolfgang Financial Group LLC are affiliated companies. Neither Wolfgang Financial Group LLC nor Wolfgang Capital LLC provides legal or tax advice. You should always consult a lawyer or tax professional regarding your specific legal or tax situation. Wolfgang Capital LLC, Wolfgang Financial Group LLC and Zachary Herzog are not affiliated with or endorsed by the Social Security Administration. This content is for informational purposes only and should not be used to make financial decisions.

The appearances in Kiplinger were obtained through a public relations program. The columnist received assistance from a public relations firm to prepare this article for submission to Kiplinger.com. Kiplinger was not compensated in any way.


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