You want to protect your assets, but there are so many ways your hard-earned savings can be sucked right out from under you! In order to preserve your wealth, let’s look at just two of the ways you can be blindsided by your retirement plan.

Market Losses:

Accruing Assets

Throughout your career, you’ve been diligently saving into your company 401k plans. Over the years, you’ve consistently sent money to your financial advisor to invest for you. It’s been your plan all along. When it’s time to retire; your advisor will help you withdraw the money from your various accounts, so your money lasts as long as you do.

You are so excited as you approach that “magic number” of retirement savings. Your advisor shows you that you are very close to achieving your goal savings.

Whew! You did it. What an accomplishment! There have been some ups and downs in the market during your wealth accumulation years. However, your advisor told you to stay in it for the long haul. You’ve finally arrived.

You make your retirement plans. You’re finally going to travel, see the kids and grand-kids, pick up a hobby or two, buy a second home, whatever fulfills your dreams.

Market Volatility

Unbeknownst to you, an economic crisis occurs after you retire. Suddenly, the money you’ve saved drops in value by 30%…the same money from which you are taking distributions for living expenses.

How does your financial professional advise you now?

There are a multitude of ways to protect your assets against economic downturn and avoid these catastrophic losses in your accounts. While you may have had your investments appropriately diversified, asset location can be far more important that asset allocation.

Taxes:

Pitfalls of Tax-Deferred Savings

Most traditional financial planners focus on helping their clients “defer” taxes using IRAs, 401ks, 403bs, etc. Without the proper financial education, most clients trot right along behind their financial advisor. They “max out” their savings into these types of accounts. Not to mention that the money in these accounts is invested in the market. This subjects it to the losses described above. A traditional financial planner often puts nothing in place to protect your assets.

Tax-deferred savings can be a useful wealth accumulation vehicle. However, the rules change when wealth decumulation begins. Many advisors tell their clients they will be in a lower tax bracket in retirement. They tell you not to worry about taxes on withdrawals. But, by saying that, isn’t the advisor implying the client is going to live at a lower standard of living than they are currently living?

If taxes go up during their retirement years, and they are withdrawing the same amount each year, their spendable income will go down. That can be very problematic as the years go on. This is particularly true if there was no plan in place should taxes increase.

Assets Taxed as Income

Distributions from tax-deferred savings plans are considered ordinary income. You earned the income years ago; however, you did not pay taxes on that money when it was earned. Now that you are retired, you must take withdrawals and claim it as income on your 1040 tax return.

You may have other sources of income to report on your 1040 such as gains on investments, pension payouts, cash flow from rental property, etc. Once you turn on your Social Security, those benefits will be reported on your 1040.

Depending on how much income you report on your 1040, a certain percentage of your Social Security benefits may be taxable. Either 0%, 50%, or 85% of your benefits will be included in your income and taxed at your ordinary income tax rates.

Medicare premiums are calculated based on how much income you report on your 1040. For an individual in 2023, Part B Medicare premiums range from $164.90/month to $560.50/month.

This downward spiraling tax cycle starts to sound like a broken record. The more income you report on your 1040 after you are retired, the more you are going to pay in taxes.

Breaking the Tax Freight Train Cycle

You may be saying to yourself, “Wait! Stop! How do I get out of this cycle?” Unfortunately, many times, it’s just too late; sometimes we can helicopter in and rescue you.

The financial services industry offers a variety of ways to protect your assets by planning toward 0% taxes in retirement. It takes working with a special type of advisor who cares and will commit the time to understand you, your current overall financial foundation, and work with you to custom-design your unique lifetime wealth plan that meets your vision, goals, and the retirement you envision.

Quite frankly, that is why I got into holistic, comprehensive lifetime wealth planning. As a CPA doing tax returns, most retired clients had no idea the Tax Freight Train was coming! Planning early and planning smart alleviates the panic, stress, tension, and constant worry about markets and taxes during some of the best years of your life! It is my belief that no financial plan is complete without incorporating asset protection to preserve your lifetime wealth.