tax-deferred

07Mar

Wanna Be Tax-Free in Retirement?

BlogMarch 7, 2023

As you approach retirement, it’s important to consider tax-efficient strategies that can help you make the most of your retirement savings. By minimizing the amount of taxes you pay, you can stretch your retirement income further and make your savings last longer. Below are some tax-advantaged and tax-free retirement accounts you can utilize.

Roth IRAs

Roth IRAs are a popular retirement savings vehicle that can offer significant tax benefits. Contributions to a Roth IRA are made with after-tax dollars, which means that you won’t receive a tax deduction for your contributions. However, once you reach retirement age, you can withdraw your savings tax-free. This can be a valuable tax-free source of income in retirement.

Health Savings Accounts (HSAs)

HSAs are tax-advantaged accounts that are designed to help you save for healthcare expenses. Contributions to an HSA are made with pre-tax dollars, which can help reduce your taxable income. Additionally, withdrawals from an HSA are tax-free if they are used to pay for qualified medical expenses. This can be a valuable tax-free source of income in retirement.

Municipal Bonds

Municipal bonds are issued by state and local governments and are typically exempt from federal taxes. If you purchase a municipal bond issued by a state in which you reside, the interest on that bond is also exempt from state and local taxes. This can be a valuable tax-free source of income in retirement.

Life Insurance

Certain types of life insurance policies can offer tax-free benefits in retirement. For example, a permanent life insurance policy can provide tax-free withdrawals of the policy’s cash value. Additionally, a death benefit paid to your beneficiaries is typically tax-free.

Real Estate

Investing in real estate can be a tax-efficient strategy for retirement planning. Rental income from investment properties is typically taxable, but there are ways to offset that income. For example, you can deduct expenses such as property taxes, mortgage interest, and repairs. Additionally, if you hold the property for more than a year, any capital gains from the sale of the property will be taxed at a lower rate.

18Feb

A Retirement Strategy Offering Both Savings and Income

Podcast BlogFebruary 18, 2022

In economic uncertainty, finding answers that provide both savings and an income during retirement becomes challenging. While you try to recover from a downturn, so are companies. And history speaks for itself: employee retirement programs are usually the first cut. This was seen after the Great Recession when corporations across the U.S. reduced and eliminated 401(k) matches. More recently, with the Covid-19 crisis, some companies have begun reducing retirement programs and other employee benefits to aid in recovering from the crisis.

Since retirement is up to the employee, you want something that will withstand the market fluctuations, lower risk, and provide a promised regular income: annuities. As an insurance product, annuities are either done with a single, lump sum payment or recurring premiums that will grow and provide retirement savings and income stream.

Overview of Annuity Types

Variable annuities often yield higher returns because they are directly tied to the consumer’s investment choices. However, they can be decrease in value when the market experiences a downturn. No guarantee is offered with interest or principal protection with these annuities.

Fixed annuities accrue interest off a fixed interest rate set at the beginning of the contract. These are written in stone for a set number of years, meaning they cannot decrease in value for that time. Thus, these annuities offer some protection guarantee, have low yields, and offer low risk.

Fixed indexed annuities are a middle ground of the other two annuities. Based on the performance of a specific index, they provide guaranteed principal protection. Risk is medium with this annuity and has a capped yield that becomes part of the annuity income stream.

Ways Annuities Lower Risk in Retirement

Lifetime income – After accumulation, income payments can be received as either a lump sum, an installment payment for a set number of years, or lifetime payments depending on the rider. This may come with a fee, but some riders have no fee associated.

Tax-deferred – As long as funds remain in the annuity, your savings will remain protected from the yearly taxation on interest. As a chance to earn interest on interest, principal, and on taxes deferred, you get ahead on retirement assets that is not typically available with other retirement accounts.

Principal protection – Protecting your hard-earned money will help reduce retirement risks you will face. With fixed and fixed indexed annuities, your principal investment is protected with the chance to grow and become a stable income stream for retirement.

Growth – Annuities offer a flexibility for growth that may be capped or have a participation rate. These are linked specifically to market indexes. A variable annuity has the potential for a high growth rate, but fixed or fixed indexed annuities allow for participation but less risk.

For more information on how annuities can reduce and eliminate risk in your retirement, please listen to The Retirement Risk Show episode, “The Crossroads of Longevity and Volatility: How Annuities Help.”

07Jan

How to Face Your Retirement Risks: Think in Buckets

Podcast BlogJanuary 7, 2022

Since the old paradigm of retirement will do more harm than good in this current world, tackling the Top Ten Risks can be tricky.

Why won’t the old paradigm work? The first reason is folks nowadays live into their 80s when decades back that was not as common. Because retirement age back in the late 20^th century was 55, many retirees waited until years past their retirement age to fully leave the workforce. Another major contributor to retirement plans back then were pensions. Social Security (SS) was on the table then, too. Folks could easily retire and enjoy their golden years off their employment pension and SS. Now, a lot of retirement is unfortunately up to the employees.

Beyond understanding SS and Medicare, balancing your assets over taxable, tax-deferred, and tax-free accounts is key to the success of your risk-free retirement. This is known as the Three Bucket System.

First and foremost, the taxable bucket is designed for emergency funds. Having 6 months of your living expenses in this bucket permits less risk. You are protected in case of emergency, and you are not exposing your savings to extra taxation.

The second bucket is tax-deferred and is a bucket folks overfill. While this bucket varies individually, there are some ‘rules’ to be mindful of. Your required minimum distributions (RMDs) should be low enough to not create provisional income (too much would cause your SS to be taxed). Secondly, you do not want them to exceed your standard deduction.

Filling the other two buckets means you can successfully begin filling the third bucket up: tax-free. The sooner you do this, the better off your risk-free retirement will do. Things that can be done for this bucket are Roth conversions or buying a life insurance retirement plan.

**We strongly encourage you to listen to our podcast Retirement Risk Show episode “Break Down the Top 10 Risks Facing Your Retirement” for a deeper dive into the information provided in this blog. For even more on the 10 Risks Top Ten Risks and strategies to reduce them during retirement, register for our webinar “Getting Safely Through Retirement.”