Retirement is a significant milestone for many, but it can be a scary adjustment to go from a steady income to living off of your retirement assets. Now that you will no longer be able to rely on your working income, it is very important to strategically plan your retirement. In this article, we are going to explore effective retirement income strategies designed to help you maintain the life you have built without compromising your financial security.

Buckets/Income Sources

One of the most important ideas to consider when retiring are your different sources of income. For many, the first thing that comes to mind is your social security. While social security is a great benefit, it is important to take into account that this amount might be taxable depending on your individual situation. After social security, many think of their retirement accounts (401k, 403b, IRA, 457) or potentially their pensions through their job. While it is great to have a huge 401k or a big pension, it can be equally as important to build some after-tax accounts, like a brokerage or Roth account. By having both after-tax and pre-tax dollars saved for retirement, you can balance the tax burden on your withdrawals to minimize the amount of your hard-earned money going to the government. After that, there can also be part-time jobs, hobbies, rentals, or anything else that provides you with income in retirement.

Investment Strategies

Another important consideration when in retirement is your investment strategy. It is very important to balance your investment accounts between growth and protection so that it fits your current situation. Since you have a finite amount of assets, being overly aggressive or overly conservative can seriously affect your retirement plan. The last thing you want to do in retirement is be forced back into a job just to make ends meet. On the other side of things, you also want to make sure to plan your withdrawals strategically to limit the realization of capital gains and losses. By planning ahead, you can allow your investments to stay in the market longer and continue to grow or even rebound after a down turn. In the end, it is very important to have a personalized investment plan that protects your assets, allows them to grow, and minimizes the taxability of any transactions.

Tax Considerations

While we have already discussed some tax considerations, there are more items to keep in mind on the tax side of things. One important consideration are your required minimum distributions, or RMDs. These are mandatory distributions that the government requires you to take each year that starts anytime from age 70.5 to age 75 depending on your birth year. If you find that you do not need this income to maintain your lifestyle, you could consider qualified charitable distributions, or QCDs. These allow you to satisfy the RMD requirement while helping a charity of your choice and receiving a tax benefit for each dollar given. Since this money is going to a charitable organization, they also get the full benefit of the contribution since they do not have to pay taxes on the amount. Another interesting tax consideration is the idea of potentially converting some of your pre-tax IRA money into post-tax dollars in years of lower income. This is called a Roth Conversion and it can be extremely beneficial if used in the right situation. For example, if you have retired and are waiting to take social security for two years, you will likely be in a much lower tax bracket compared to your past and future tax situations. This can be a great time to shift some of your assets around to build your different buckets of money for retirement.

In retirement, you are often living off of a fixed income or a finite amount in assets. With that being the case, it is extremely important to plan your retirement and strategically utilize your limited resources. By doing this, you can lower your tax liability, protect your assets, and allow them to continue to grow. Here at John G. Ullman & Associates, we are constantly helping our clients build personalized retirement plans that fit their needs and goals. Also, we continue to monitor this plan and adjust as your life changes. If you find yourself having any questions about your retirement, reach out to us at JGUA for a free consultation by calling 607-936-3785, or reaching out at [email protected]. We look forward to helping you through this important transition.