One obvious question: “How long will these assets have to last?” The answer will vary depending upon the lifestyle and goals of the retiree.
Another question: “How can we minimize taxes to keep the most resources available to provide the required income?”
We also must consider what tax laws or regulations are likely to change over time, changes that might positively or negatively affect one’s resources in the future.
And, tax planning is important for a reason that may seem counter-intuitive to many. The popular notion is that one’s income tax bracket will be highest at some point during one’s working career, and it will be lower in retirement. However, with a properly planned investment portfolio, we often are finding people who move into a higher tax bracket upon retirement.
This seems particularly prevalent in our clients in their 70s, who wisely have deferred Social Security withdrawals and accumulated resources. As they encounter Required Minimum Distributions from retirement accounts, they may actually achieve a higher household income than when they were working. This is a “great problem to have,” but better to plan for it prior to reaching age 70 ½ when you still have options available.
I emphasize that this planning is more an art than a science, because we know change is inevitable. I’ve offered here the reasons why the distribution phase is important. The next blog will look at various strategies for drawing on one’s funds.
Thorley Wealth Management does not provide legal or tax advice. You should consult a legal or tax professional regarding your individual situation.