Insight by ClearLogic Financial

Ten brilliant ideas for retirement planning

Transitioning from full-time employment to retirement is not just a significant lifestyle change, but requires a shift from saving and accumulating wealth to spending those hard-earned dollars to fund retirement. Part of the transition requires making important financial decisions, which can have a significant impact on your long-term wealth.

We’ve outlined 10 of the key decisions to consider, including Social Security timing, rolling your TSP into an IRA, streamlining your financial life, and taking the...

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Transitioning from full-time employment to retirement is not just a significant lifestyle change, but requires a shift from saving and accumulating wealth to spending those hard-earned dollars to fund retirement. Part of the transition requires making important financial decisions, which can have a significant impact on your long-term wealth.

We’ve outlined 10 of the key decisions to consider, including Social Security timing, rolling your TSP into an IRA, streamlining your financial life, and taking the appropriate amount of risk.

1. Consider delaying social security

While not always the best answer (we can help determine when it’s not), delaying social security provides a low-cost, guaranteed return that can’t be matched by annuity products.

2. Touch the principal

Many retirees aim to “live off the dividends and interest” of their portfolio. For most retirees living in the DC area during these low interest rate environments, it would require a $3M portfolio, and a poorly diversified portfolio to achieve that. It’s also a tax-inefficient way to provide your income. When market environments warrant, it often makes sense to sell stocks or funds (touch the principal) to fund your retirement goals.

3. For federal retirees, choose the survivorship option on the pension

From our experience, most often the full survivorship option is the lowest cost life insurance risk management tool available. Using traditional life insurance to replicate the inflation protection benefit of the survivorship on your pension would cost substantially more than the 10% reduction in your pension.

4. Rollover your Thrift Savings Plan (TSP)

It streamlines your financial life and allows you to improve your portfolio’s diversification by investing in asset classes not included on the TSP platform. It will also make managing your required minimum distributions easier, which will begin the year you turn 72.

5. The Federal Voluntary Contribution Plan

If you have cash sitting in the bank in excess of what you need, you can put up to 10% of your lifetime earnings into a Voluntary Contribution Plan prior to retirement. Then, you can roll over that Voluntary Contribution Plan to a Roth IRA before retirement, bypassing the Roth contribution limits. As long as you keep the Roth for 5 years, it becomes another tax-advantaged account to withdraw from, leave to heirs, or help pay for your long-term care.

6. For the charitably inclined, open a Donor Advised Fund

Especially in your last few years of high earnings to get the most bang for your itemized deductions. Your donation is invested and can earn tax-free returns, increasing the dollars you actually give to charities, thanks partly to the markets.

7. Consider taking money from your IRAs before you have to

For those in their 60s and whose income will drop significantly in retirement, consider taking money from your IRA even if you just reinvest it in your taxable brokerage account. Getting money out of your IRAs when in the 10 or 12% tax brackets can prove very wise. Tax legislation in the future may wipe out those tax brackets. We do multi-year tax projections to see if this makes sense for clients.

8. Streamline your financial life

Consolidate accounts where appropriate, designate beneficiaries to your accounts, view all your accounts as one cohesive unit working together to achieve the highest, most tax-efficient, returns it can achieve. The sum is much more powerful than the individual parts.

9. Take only the risk you need to take to achieve your own personal objectives.

For most, retirement is not about maximizing returns anymore; it’s about living your own retirement goals. Nothing more. Develop and stay disciplined with a portfolio that achieves those goals. Greed can and has ruined people’s retirements.

10. Hire an advisor

Even the best professional athletes have coaches and trainers to keep them disciplined and performing at their peak abilities. A fee-only, trusted advisor, who looks out for your best interests and is there for you when retirement presents its challenges, can be invaluable. Sometimes an advisor’s biggest role is preventing one from making an irreversible mistake.

All investing involves risks, including the potential for loss of principal. There is no guarantee that any investment plan or strategy will be successful.