After an extended summer hiatus, here is the next installment in a continuing series on the topic of creating a pre-retirement financial planning checklist.  You may recall my previous blogs were based upon a simple airplane landing analogy.   THE RETIREMENT TRANSITION ANALOGY: GETTING THE PLANE READY TO LAND. PREPARE FOR LANDING: A RETIREMENT READINESS ANALOGY-VISUALIZING RETIREMENT PREPARING FOR RETIREMENT CHECKLIST: DOING THE MATH!   After a relatively long and uneventful flight, the crew springs into a flurry of pre landing activities during the last 15 minutes, necessary to guarantee that the landing is safe and on time. Likewise, as we near our retirement date, there are some critical tasks necessary to be ready for a safe and well-planned transition.  In this segment, let’s examine the need to make some substantive changes to our investment portfolio to accommodate the need for retirement income. The airplane analogy works well in describing this transition.  During...

In the past few installments of this blog, we’ve been exploring the idea of a checklist of critical tasks to accomplish 5 to 10 years before retirement.  I’ve been using the analogy of the checklist an airline crew uses in preparing their aircraft for landing during the last few minutes of the flight.   In last month’s article, we considered the need to create an intentional and detailed vision of the unique retirement we want to experience.  So let’s assume you were successful and have your vision firmly in mind- now what? Well, this leads us to a natural and logical next step which is to determine if our vision is financially sustainable.  This is the part where we calculate the future cost of our dream retirement and make sure that it can be supported by our financial resources.    Back in the day, this type of calculation required some “spread-sheeting” wizardry given...

In my previous blog, I used our common airline flight experience as a retirement readiness analogy.  In the last fifteen minutes before landing, the flight attendant will make an announcement describing a number of key tasks that need to be done to ready the plane for landing and we can liken this to the five years (give or take) prior to retirement.  I outlined five high priority preretirement tasks.  In this article lets focus on the first:  Visualizing retirement in detail. During our early career years, we can prepare for retirement readiness, but often our notion of retirement is understandably vague.  With so many elements of our future life yet unknown, it’s reasonable to simply save and invest a percentage of our salary for our future.  If we do attempt to calculate our retirement needs, most calculators will assume a broad retirement income objective such as 70% of our current income. But...

At the risk of oversimplifying, and with apologies to flight professionals everywhere, a normal airline flight makes for a pretty good retirement analogy.  From observation, it seems to me that takeoff and landing are pretty busy events while the majority of the flight seems rather simple (hence the term- auto pilot). In particular, the last 15 minutes of the flight contains a flurry of actions and reminders; all directed to getting the plane and its passengers and crew on the ground and to their destination safely and securely. So the analogy is pretty obvious. Getting up and off the ground and moving toward a retirement destination involves some effort.  Establishing a tax efficient savings and investment pattern that leads to our retirement destination requires thoughtfulness and discipline. But once started, there aren’t a lot of moving parts; it’s good to go on auto pilot and let the time-value of money take...

In previous installments, we discussed the tax planning benefits associated with strategic ROTH conversions, especially prior to age 72 when Required Minimum Distributions begin.  As you will remember, these conversions may be done each year to convert pretax retirement accounts that have never been taxed, to tax free ROTH accounts. The conversion creates taxable income, but can be done in the years when you are in a lower marginal tax bracket. The goal is to intentionally fill up the lower tax brackets now with ROTH conversions, rather than waiting until age 72 and beyond when your marginal tax bracket may be much higher. But the recent SECURE Act provides another benefit of ROTH conversions, specifically to non spouse beneficiaries. The SECURE Act eliminated the very preferential stretch IRA treatment given to non-spouse beneficiaries of pretax retirement accounts. Prior to the law change, your beneficiary could receive an inherited IRA and “stretch”...

In our last tax planning segment, we discussed the opportunity to maximize contributions to tax-favored retirement accounts.  Let me repeat my original premise: as a general rule, it is advisable to fill up each tax-favored retirement account for which you are eligible, to the maximum limit possible, given the amount of liquid funds available.  To do otherwise is to forgo a tax benefit and miss an opportunity that will increase your wealth over time. With that said, we are faced with the choice of contributing to pretax retirement accounts versus ROTH based accounts.  Many individuals select the pretax option during their highest earning years to find immediate tax relief.  However, this strategy, if pursued exclusively, creates a challenge in retirement.  We may find that our retirement income will be exposed to an equal or even higher marginal tax rate in the future.  Here are some of the contributing factors. While contributions...

Back in February, we anticipated writing an ongoing series of articles on the measurable value of forward-looking tax planning, a topic that we spend a lot of time thinking about here at Level Financial Advisors.  We posted the first article, but then COVID 19 intervened in all of our lives and our attention turned to the more immediate topics resulting from the crisis. This article brings us back to the tax planning theme and focuses on the use of tax favored retirement accounts.  There are two distinct components to the planning function.  First, we must make decisions about new contributions during our working years and then, just as importantly, make decisions about how to best distribute the funds from the accounts in the future. This article will focus on contributions and the next in the series will address distributions. We must add a note of caution as some families are facing reduced...

One of the benefits of financial planning is proactively preparing for periods of financial instability and chaos. Clearly, we are in such a period as all of us are experiencing the full range of anxiety and insecurity caused by: The health risk to ourselves and our loved ones. The sense of isolation and disruption. The financial impact on our income and investments. The fear of the unknown; this is unprecedented! Let’s acknowledge that the specific nature of the pandemic and the emotional impact of being isolated were not factors that many folks anticipated or planned for. And while it is impossible to avoid the emotional discomfort, we can gain some measure of security by applying logic, research, and smart strategy to the things we can control, especially within our finances. The economic impacts of this crisis have been experienced before and a good financial plan can address these periods of instability and...

In the first quarter of each year, much of America turns their attention to filing tax returns. It’s not something we relish, but necessary to comply with the tax code.  So this year, while you are forced to think about taxes and perhaps have all the important documents in front of you, make a decision to also do some tax planning. So what’s the difference between tax preparation and tax planning?  That is an important distinction.  Tax preparation requires us to look back upon the past year and provide an accounting to the IRS about the amount of tax we owe.  While your tax preparer will use every technique to minimize this amount, the opportunities to improve your tax picture for the past year are somewhat limited. Conversely, tax planning is forward looking to the coming tax year and beyond.  It’s quite understandable that your tax preparer may not be in a...

Often, the average investor approaching retirement assumes they will convert their nest egg to a more conservative portfolio and then “live off the interest.”  It’s an attractive concept because it’s simple and it makes us feel safer.  But is it really so?  Simpler, yes; but not necessarily safer.  If you broaden your lens and consider that the greater risk in retirement is the effect of thirty-plus years of inflation, the answer is clearly no. To create cash flow from just interest, an investor would probably have a portfolio filled with fixed income investments (CDs, bonds, REITs and high dividend stocks).  Over thirty years, this portfolio would be more vulnerable to the loss of purchasing power (inflation) when compared to a more broadly diversified allocation that is managed for total return.  Even modest inflation rates can decimate a portfolio’s purchasing power over this length of time. And, retirees are exposed disproportionately to...