Sponsored

Focus on What You Can Control for a More Secure Retirement

Michelle Brownstein, Vice President of Private Client Services, CFP®In retirement, the less uncertainty, the better.

Michelle Brownstein, Vice President of Private Client Services, CFP®

In retirement, the less uncertainty, the better. Unfortunately, some events are impossible to predict, like changes to tax legislation or the direction of the stock market.

But that doesn’t mean you can’t prepare. There are some areas of retirement planning where taking action now can reduce the risk of running out of money later.

Plan for tax changes

Some taxpayers in high tax states like New York, California and New Jersey might be facing higher taxes because the tax law limits the amount of state, local and property taxes that can be deducted from federal income taxes. As a result, retirees—and soon-to-be retirees—should think carefully about where they want to live.

On the portfolio side, pay close attention to the account types you use for different investments. Your choices can have big tax consequences.

  • Tax-sheltered accounts are good for investments that pay dividends and interest because no tax is owed until the money is withdrawn. (If it’s a Roth, you never have to pay taxes on that income).
  • Taxable accounts, on the other hand, are better suited for investments such as growth stocks. That’s because those gains, when held in taxable accounts, are only taxed 15% or 20% for most people.

Be smart about income

One of the new tax law’s provisions raises the income level on higher tax brackets. That will help alleviate income pressure in retirement by giving you added flexibility. You’ll now be able to take bigger withdrawals from IRAs and 401(k)s with¬out moving into a higher tax bracket (at least until those changes expire in 2025).

In addition, municipal bonds provide interest free from federal income tax. Bonds from your home state also give you a break on state income taxes.

Strike the right asset balance

Your mix of stocks, bonds and alternative investments, otherwise known as asset allocation, is the top driver of your portfolio’s long-term returns. If your goal is to grow your portfolio for retirement so that it can support you for several decades, you’ll want an asset allocation that’s historically been able to achieve stronger returns. That generally points to stocks.

However, as your age and life circumstances change, you’ll need to tweak your asset allocation. What’s appropriate at 25 may carry too much risk when you’re in your late 50s or early 60s.

The challenge is to find the right balance between an asset allocation that feels comfortable and one that can outpace inflation, so you can maintain your purchasing power throughout your retirement.

Make contingency plans

Retirement planning isn’t just about what you invest in, it’s also about timing. Just ask anyone who planned to leave the workplace in 2008 or 2009. Even those who had an appropriate asset allocation still saw their portfolio values fall due to the severe financial crisis.

Of course, it’s nearly impossible to predict when the next bear market will strike. And that’s why an asset allocation that matches your age and time horizon is just your first line of defense.

Should disaster strike when you have little time to recover your losses, you may need to make other changes to your plan. For example, you might have to consider working longer, reducing your withdrawals, or downsizing your retirement expectations.

Fixed, but flexible

A lot gets thrown at you during the decades you’re saving for retirement. Much of it is out of your hands. Focus on what you can control, but also be aware of the things you can’t. That way, you’ll be ready for anything.

Personal Capital offers free online financial software, mobile apps and personal wealth management services. Learn more at www.personalcapital.com.

This content was provided by Personal Capital. Kiplinger is not affiliated with and does not endorse the company or products mentioned above.

Most Popular

Tax Wrinkles for Work-at-Home Employees During COVID-19
taxes

Tax Wrinkles for Work-at-Home Employees During COVID-19

Are your home office expenses deductible? How does going out of state to work for a while affect your tax picture? There are some interesting wrinkles…
November 9, 2020
Retirement: It All Starts with a Budget
personal finance

Retirement: It All Starts with a Budget

When you’re meeting with your financial planner, do you talk about your budget? If not, you should.
November 10, 2020
Will Joe Biden Raise YOUR Taxes?
taxes

Will Joe Biden Raise YOUR Taxes?

During the campaign, Joe Biden promised that he would raise taxes for some people. Will you be one of them?
November 10, 2020

Recommended

The Best T. Rowe Price Funds for 401(k) Retirement Savers
Kiplinger's Investing Outlook

The Best T. Rowe Price Funds for 401(k) Retirement Savers

A dozen T. Rowe Price mutual funds also have a place among the nation's most popular 401(k) retirement products. Find out which funds belong in your r…
November 27, 2020
The Best Fidelity Funds for 401(k) Retirement Savers
Investing for Income

The Best Fidelity Funds for 401(k) Retirement Savers

Fidelity funds are renowned for their managers' stock-picking prowess. We rate Fidelity's best actively managed funds that are popular in 401(k) plans…
November 27, 2020
The Best Vanguard Funds for 401(k) Retirement Savers
mutual funds

The Best Vanguard Funds for 401(k) Retirement Savers

Vanguard funds account for a third of the 100 most popular 401(k) retirement products. We rank Vanguard's best actively managed funds, including its t…
November 27, 2020
Bad News for Super Savers
Financial Planning

Bad News for Super Savers

Low inflation keeps thresholds on retirement savings plans in check.
November 25, 2020