Retirement Planning
As you move into retirement, you will be encountering a new financial challenges and risks. Retirement is a new stage of life that changes your financial goals. In retirement, boomers are moving from wealth accumulation to wealth preservation phase, and focusing on generating a steady and a reliable stream of income to last a lifetime. Most retires, start their retirement believing that they will have more than enough to live a comfortable lifestyle. But, as the years pass, events beyond their control can erode their retirement nest egg and diminution their family wealth. Several unexpected developments could put your wealth in jeopardy:
- Tax rate increases on income and capital gain
- Poor investment performance
- Unanticipated medical cost
- Need for long term care facilities
- Unexpected property repair and maintains
- Living longer than life expectancy
- Higher than expected inflation
Many baby boomers like to retire without down-sizing their lifestyle. They would like to implement strategies to help preserve their nest eggs and provide reliable streams of income.
The following are strategies that may help enhance your wealth by potentially preserving your assets and generating a lifetime income:
1. Reinforce a Spouse's Financial Future with reserve Funds.
During the course of retirement, financial assumptions may not play out as originally expected. A retired couple can experience higher than expected living costs/inflation. There may also be unexpected property losses or medical costs from unexpected accidents or illness. The investment performance of their retirement fund may be sub-par. If any of these situations arises, you should have enough reserve to reinforce the survivor's financial future.
2. Replace Income Taxes on Tax-Qualified Account Distributions.
The balance in a retirees' tax-qualified retirement plan is not all theirs to spend. As they take distributions from the account, they must pay income taxes. Retirees may use strategies to potentially “replace” these income taxes for their families and preserve their wealth.
3. Create Funds to Convert a Traditional IRA into a Roth IRA.
Many retirees would prefer to pass on a Roth IRA to their families instead of a traditional IRA. Although most retirees have the ability to convert to a Roth IRA during their lifetimes, most don't do so because they don't want to pay the income taxes that would be due. If the spouse has been named as the IRA beneficiary and if all the conversion qualifications are met, the spouse can roll over the IRA to their own name. Then the surviving spouse can elect to make the Roth IRA conversion. You should have a strategy to help create funds for the surviving spouse to pay the income taxes due.
4. Increase the Legacy a Traditional IRA Can Pass On.
Traditional IRAs may be limited in their ability to pass on wealth to surviving family members. Distributions to beneficiaries are generally subject to income taxes. If the owner is wealthy enough, estate taxes could also be due. With the right strategy, you may be able to help increase the legacy from your IRA.
5. Transfer your wealth to a Targeted Inheritance.
Some retirees have very specific ideas about how large an inheritance they wish to leave behind. Some may want to provide their children an exact amount and leave the balance of their estate to charity. Others may wish to leave their estate to their children but also provide a specific amount to their grandchildren.