One of the most important investment decisions in one’s life is the retirement plan.
Some of the traditional retirement vehicles (e.g. pension plans) are no longer available. Social Security’s unfunded liability is now over $22 trillion! In the not-too-distant future, Social Security benefits will have to change. We must rely on 401Ks, 403Bs, SEP IRAs, traditional IRAs, Roth IRAs as well as non-qualified retirement accounts when planning for our “golden years.”
Often I hear the question, “When is the best time to begin a retirement plan?” It reminds me of the question, “When is the best time to plant an oak tree?” The best time is now!
Folks just getting started with their career should begin a retirement plan right away. If you don’t contribute to your retirement plan, you will be giving money to Uncle Sam that you could have working for your future. Tax deductions and tax deferral are great “carrots” that should encourage everyone to begin planning for their “nest egg.” Most employers will contribute to the plan along with you.
Set lifestyle goals. Really think about what the ideal retirement would look like for you. Would traveling the world be a part of it? Would you like to work on your golf game? Perhaps a retirement “village” with activities and a community of other retirees would be your desire. Whatever it might look like, there is a cost involved, and it must be planned for.
Take control and stay flexible with your retirement plan. Things change in life. Health issues can change your lifestyle overnight. It’s important that your portfolio has flexibility to change with life’s changes.
Evaluate long-term care alternatives. The cost of long-term care has increased dramatically over the years. There are ways to take care of long-term care costs via life insurance with a “long-term care rider.” The earlier you begin this process, the better as qualifying for life insurance becomes more difficult and costly as you age.
Estate planning should be a part of the retirement planning process.
It’s important to have a tax attorney as a part of the planning team. Plan for estate taxes. This is a “moving target,” as estate tax laws continue to change and many estate professionals believe that estate taxes will increase.
A living trust is an important tool that can help you avoid taxes and delays with the proper estate plan.
Tax considerations should be included in your retirement plan. A quality CPA will bring valuable tax advice into the planning process. For example, your tax situation will determine if you should convert your IRA to a Roth. It is important to consider all the pros and cons.
Finally, ensure that your portfolio is working for you according to your goals and objectives. Your “retirement team” should include an estate and tax attorney, a CPA and a fully licensed adviser.
A dynamic financial plan for one could be totally inappropriate for another. The plan should fit “who you are financially.”
Risk tolerance, time frame, income needs and flexibility must be considered carefully. A diversified portfolio with “safe money,” non-traded investments and a portfolio of quality stocks and bonds should encompass the plan. Ensure that your investment portfolio is monitored and reviewed on a regular basis.
As the marketplace and your retirement needs change, it is important that you have the flexibility to adapt.
Stay the course!
Tim Tremblay is president of Tremblay Financial Services in Santa Barbara (www.tremblayfinancial.com).