Tax Talk- Did You Forget April 1st?


Most people consider April 15th to be the only tax deadline they need to worry about, or the 17th if we’re talking specifically about this year. Well if you are withdrawing money from a qualified retirement account then April 1st is not a day you should forget either.

April 1st of the year following when you turn 70 ½ is the day you are required to take a minimum distribution from your tax-deferred retirement account. This is imminently important for those who are currently in that age bracket but it definitely should not be overlooked by those who are several years away. There’s a great article here from Smart Money that covers the basics of what you need to know.

You see, whether you need to take those withdrawals this year or not, any planning you do for the future needs to be done with RMDs in mind. IRAs and such are great for tax deferred saving but when it comes time to convert those assets into retirement income of any kind there are plenty of special nuances that must be considered when planning an income strategy.

First of all, add up all qualified assets and get an idea of how big your RMDs will be. This can be done using some simple formulas mentioned in the article and we’re here to guide you through it if you need to boil it down to exact numbers. Then you need to consider how those numbers match your plan for distribution of assets throughout retirement. Once you figure out how much you’ll be required to take you can design an income strategy that is flexible enough to keep you within IRS rules.

Other than that there are a couple of things that are important to mention…

First, if you are planning on taking systematic withdrawals from a traditional management portfolio then you need to carefully consider how your assets will be affected by a market slump. It will happen and when it does you’ll still be required to take RMDs which will only depress your account further. Do remember when we talked about Reverse Dollar Cost Averaging? It may be well worth another read.

Second, deferred income annuity contracts can be adversely affected as well. If you plan on parking money in a deferred annuity with guaranteed income rider past age 70 ½ you may still be required to withdraw money from your account before you had originally planned. This will decrease the amount of guaranteed income you can expect to take in the future. Tread lightly and take all factors into account before you commit to a long-term strategy with qualified assets.

No matter how you are planning to distribute your assets for retirement income, careful and exact calculations are necessary. I don’t care if you are age 55, 65 or 75 this is something everyone needs to think about. All planning should be done with every known variable in mind. There are plenty of unknown variables to worry about so the last thing you want to do is be blindsided one day by something you should have taken care of long ago.

One thing’s for sure, the day of RMDs is coming so get your ducks in a row now.

Have a great week!

Bryan J. Anderson
[email protected]

Is Your Adviser Still Right for Your Retirement? Smart Money


As I started reading this Smart Money article it seemed to be similar to the dozens of writings I read each week in search of information that will benefit your retirement analysis. It didn’t take long to realize that several points made relate directly to information from our pension series that was recently completed. I’d like to point out the similarities to add weight to my pension analysis and give you the opportunity to see it from a different angle. Read the article here.

This article relates directly to the 3rd installment of the pension series- Why Traditional Planning Doesn’t Work for Retirement Income. It talks about how money managers have been focused on general investment strategies that don’t work the same way while distributing assets.
While the value total return managers have added to personal finance is without question, strategies need to be shifted in whole or part depending on what stage you are in life. Asset allocation is a very specific formula based on several individual factors. Your diversification across all asset classes is and should be much different than it was 20 or 30 years ago.
Here are a few key statements that echo the analysis in the pension series…
While you are working, a regular paycheck allows you to ride out market volatility- the key here is to realize that you’ve had steady income while saving for retirement. That gives you flexibility with investments so periodic volatility doesn’t affect your lifestyle or spending patterns. Income in retirement should be no different.
Once you retire, you can’t afford to wait for bear markets to recover- with a majority of assets exposed to market risk, you’ll no doubt see disappointing performance at some point. That will mean constant spending adjustments to keep from running out of money.
Diversified portfolios work if you have a long time horizon and don’t need the money- the lower your income needs are in relation to your level of assets, the more shock your portfolio can absorb. Regardless, taking withdrawals from a battered portfolio is never an efficient way to manage money as it forces you to sell assets at rock-bottom prices during bear markets.
The job of financial management in retirement is more difficult when trying to plan for income, tax reduction and assett growth regardless of market conditions. It’s not really that much harder but does take a different line of critical thinking.
In order to get the most from your advisor, the article offers a few good questions you need to ask:
                How will you produce income in retirement?
There are far too many associated risks with simply attaching a withdrawal rate to savings.
                What happens when the market enters a down-cycle?
With proper guarantees in place, lifestyle adjustments won’t be necessary during inconvenient market periods.
                What is my probability of success?
Consider how your retirement income portfolio would have performed in the past. Also take note of what your investment experience has been in the past. You’ve experienced long-term growth but also experienced disappointing losses. Be sure to design a plan that takes all contingencies into account.
Accumulation strategists have been focused on long-term asset growth that comes with volatility that produces favorable results over several years or decades. Retirement income planning requires more stability and although specialized planning strategies are gaining more traction, common advice is still dominated by traditional accumulation philosophy. It’s critical to consider the difference as you work toward making individual plans.
This article does make it sound like income planning is more technical but the actual products and strategies you use are much simpler. It’s just not that hard. That’s because those products deal with contractual guarantees, not projections and shouldn’t scare you away with simplicity. Technical language certainly doesn’t lead to a higher probability of success. Maybe it’s time for someone who gives it to you straight.
Is my age an issue for you? Many people have expressed reservations so I’ll confront that right now. It shouldn’t be… by choosing an advisor who is of similar age, you are dealing with another individual who wants to retire as well. What’s he going to do when you call him in 15 years with a problem?  My guess is you’ll get a successor who is my age, giving the same advice the mentor taught… buy low, sell high and be patient, the markets will recover.
That’s not my game. If it’s not yours then maybe it’s time we had a meaningful conversation.
Thanks for your time and have a great week!
Bryan J. Anderson

[email protected]