You may be reaching a stage in life when you’re becoming more conservative about investing and money management. As you transition into retirement, it’s only natural to be concerned with mitigating risks to your assets. Market or investment risk is the one people think of first. Others include sequence of return risk, longevity risk, inflation risk, tax liability, and more. Fortunately, having a good financial plan enables you to combat all of them.
Market declines in the beginning of retirement can be especially damaging to your accumulated assets. If you’re withdrawing money for income while the value of your savings is dropping, it will impact the longevity of your portfolio. This is known as sequence of return risk, and it can lead to running out of money in retirement. It’s easy to understand why. You’re essentially selling at the wrong time. A simple way to prevent this is by keeping a portion of your savings in conservative investments.
It’s also important to protect assets from tax liability. While it’s impossible to escape all taxes, it’s important to minimize your lifetime tax liability. By paying less to Uncle Sam, you can wind up with more money to spend on yourself and more to leave to your heirs. This requires looking at financial strategies that promote tax efficiency, such as contributing to a Roth IRA or using a Roth IRA conversion. You may sacrifice higher taxes in the short-term to enjoy major tax savings in the long run thanks to tax-free growth, income, and wealth transfer.
A major life event, such as needing long-term care, can also threaten your financial well-being. There are several ways to protect yourself. If you have substantial savings, you can self-insure for the risk by earmarking some of your assets to pay for healthcare and medical costs. Long-term care insurance is another option. Today, insurers have both standalone and hybrid policies to choose from. You can also move money into an irrevocable trust. This type of trust can protect your assets from nursing home or home health care costs if it’s established years in advance of the long-term care event.
A great many risks to your assets can be anticipated and sidestepped if you have smart financial advice. Talking with a financial professional can help insure your assets are protected and available for you to enjoy.
How We Help You Protect Your Assets
At Johnson Brunetti, we believe that asset preservation requires more than a diversified mix of securities. We use products with downside protection rather than relying solely on fixed income securities and bond funds. We favor insurance products, such as fixed index annuities, that can limit or eliminate downside losses while offering upside potential. These products can be advantageous for weathering the different market cycles of a typical 20- or 30-year retirement.
Our primary focus isn’t how much savings you have, but what rate of return you need for a successful retirement. It’s extremely important to balance risk and return your portfolio as you age. The majority of people we meet for the first time are taking more market risk than they know and more than is necessary for their financial objectives. We find most clients are better served by investments that produce more reliable, more consistent returns. Most breathe a sigh of relief knowing they’ve gotten off the investment roller-coaster.
Tax-efficiency also boosts asset preservation, so we offer recommendations that can reduce your lifetime tax obligation. You’re probably accustomed to looking only at your annual tax bill. If so, looking at the bigger picture will be eye-opening. Chances are, changing your perspective from short- to long-term will lead to using different financial strategies and investment tools. This might include doing a Roth IRA conversion to move tax-deferred assets out of a 401(k) and traditional IRA. It’s often the most efficient way to reduce the future tax burden from a large nest egg of tax-deferred savings. By evening out your savings profile to include more taxable and tax-free products like a Roth, you can enjoy more spendable retirement income and leave more retirement wealth to your beneficiaries.
We’ll also address questions, such as:
- How will I fare if we encounter another Great Recession or a DotCom Stock Bubble?
- How can I protect myself against rising health care costs in retirement, including those associated with long-term care?
- How big a risk is rising inflation?
- What are the best ways to trim my tax bills?
- Is it okay to have all my retirement savings in tax-deferred plans?
- What should I do if my retirement coincides with a market downturn?
Our Philosophy & Approach to Asset Protection
1. We believe asset protection means safety of principal
Fixed income or bond funds are market-based tools that increase diversification but don’t safeguard your money. Fixed income is an important asset class, but when the objective is preserving principal, we turn to products with minimal risk.
2. We stress tax efficiency in retirement savings and income planning
Paying unnecessary taxes can threaten your financial stability and independence. We recommend strategies and tactics that can minimize the taxes you’ll pay over your lifetime.
