Retirement Investing

Retirement planning looks much different than it did a century ago. With lifespans and retirements lasting longer, it’s not just about planning for a financial future; we must also create a post-career strategy that takes into account emotional, intellectual and quality of life challenges during later years.

 

After all, we don’t just stop enjoying life after age 65, 75, 85 or older. As long as we’re alive, we want to enjoy the things that make us happy. When you start the retirement planning process, it’s important to think about things you’ll want at each stage of your golden years -- from the active stage, to the slowing down stage, and even the periods when you can reasonably expect to have health and/or mobility challenges.

 

Savings, investments and insurance are at the crux of retirement planning -- providing income now and for loved ones who may survive you. If you’d like help developing financial strategies for each stage of retirement, please give us a call.

 

Among the first things to consider in retirement investing’s earliest considerations is regular contributions and the power of compounded interest. Obviously, the earlier you start, the better your chance of accumulating earnings. There’s also the added advantage of getting a current income tax deduction on tax-deferred contributions to qualified retirement accounts.

 

However, by mid-career it’s also important to consider the value of tax diversification. It can be a burden to pay taxes on plan distributions once you’re retired, so it’s worth considering strategies that diversify your retirement portfolio in terms of account types and tax obligations to help avoid a huge tax bill on your retirement income.

 

It's also important to consider how much market risk you should take on during retirement. On one hand, you don’t want to lose long-accumulated earnings to a market decline. On the other hand, living 20+ years in retirement requires continued growth opportunities. It’s a good idea to work with a financial advisor to help establish a mix of retirement investments for your circumstances, taking into account your goals, risk tolerance, investment timeline and the composition of your overall portfolio, as well as including a high-yield savings account for emergencies.

 

A Roth IRA can help address tax diversification through long-term compounding and access to funds in retirement. The Roth allows you to withdraw original contributions tax-free and penalty-free at any time for any reason. Any money in a withdrawal that exceeds the amount of your original contributions is considered “earnings” and is subject to possible penalties and taxes. To withdraw earnings without paying taxes or penalties, you must follow very specific rules. Not only do you not pay taxes on qualified distributions from a Roth IRA, but that income doesn't count when calculating taxes on Social Security payments.

 

Converting to a Roth IRA may be beneficial to those approaching retirement who are concerned about the potential tax liability on their qualified assets. Individuals can use their current income to help pay the inevitable income taxes on the conversion throughout a number of years. However, they’ll enjoy freedom from income taxes on qualified Roth distributions during retirement. Again, this strategy should be considered within the context of one’s overall retirement portfolio, and we’re happy to help you assess if this would be a good fit for your unique circumstances.

 

Since the post-career period is generally longer these days, retirees also need to pay attention to the current economic environment when making financial decisions. For example, recent and expected hikes in interest rates by the Federal Reserve Bank, CDs and other fixed income vehicles offer a conservative option for retirement funds. While growth is important in the long-term, retirees may need to strike a balance between preserving the funds they have now and what they may need to earn for the future.



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Raymond C. Lantz, Jr. is the president and founder of USA Wealth Group, Inc. Ray has many years of experience advising clients in retirement and sophisticated tax planning strategies, multi-family and commercial real estate projects, and legacy planning. Ray is a graduate of Clark University, holds a law degree from Boston College, and a master of laws in taxation from Boston University. You can hear him every Sunday on Money Wise with Ray Lantz on WBSM 1420AM or on the Radio Pup app. 

 

Interested in reading more?  Here are some articles that may be of interest to you:  

Quantifying the Value of Retirement Accounts

6 Low Risk Investments to Build Retirement Income

The Simplest Move To Reduce Your Tax Bill

Does Switching To A Roth IRA From A Regular One Still Make Sense?

Investors Perk Up As Bank CD Rates Near 3 Percent

Neither our firm nor its agents or representatives may give tax advice. Individuals should consult with a qualified professional for guidance before making any purchasing decisions.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. 

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

Investing for the Long Term

What does the phrase “long term” mean to you? For children, long term can mean waiting for Christmas or summer vacation that feels like a million years away. For young adults, long term may reference how long it takes to pay off student loans. As we get older, we begin to understand that long term can be a really long time – even decades. We may wonder where the years went. Suddenly we’re in our 50s, 60s, 70s or older. Long term tends to be a subjective phrase depending on what stage you have reached in life and what your goals are.

When it comes to investing, its meaning is only marginally clearer. In other words, if we’re encouraged to invest for the long term, how long is that – 10 years, 20, 30? It largely depends on what your financial goals are – a house, college tuition for the kids, retirement and so on. We take the time to help clients define their financial goals and then create strategies using a variety of investment and insurance products to custom suit their needs and objectives. Give us a call so we can work with you to help you pursue your long-term goals.

It’s worth noting that even an experienced investor can’t say for sure whether they’ve got the right mix of investments for the long term. Take, for example, Jack Bogle, the founder of The Vanguard Group. He recently responded to a question he received from a young investor concerned about how potential catastrophes would impact his portfolio. Bogle replied by sharing his own portfolio mix (50/50 indexed stocks and short/intermediate bond indexes) but said that half the time he worries that he has too much in equities, and the other half that he doesn’t have enough. “We’re all just human beings operating in a fog of ignorance and relying on our common sense to establish our asset allocation,” he wrote to the investor. 

The S&P 500 has nearly quadrupled in annualized returns since its low in 2009. Several prominent market analysts and investment firms suggest this means it’s about time for a market downturn. The question is, if you’re a long-term investor, do you sell in anticipation of a correction? After all, if the point is to buy low and sell high, it makes sense to take gains while prices are at their highest before they begin to drop. Or does it?

That’s not what long-term investing is about. The reason returns over 30 years tend to outperform those from, say, five years, is that time is what typically smooths out those periods of volatility. If we continue investing automatically, we may end up buying during those periods of price drops and we can potentially make stronger gains as prices rise again.

If we base our investment decisions on when the market will take a turn for the worse, we could end up missing out on the future gains that could have been made. Long-term investing may involve patience, unlike children who anxiously await the holidays.

Investing involves risk, including the potential loss of principal.  No investment strategy can guarantee a profit or protect against loss in periods of declining values. It’s important to consider any investment within the context of your own goals, risk tolerance, investment timeline and the composition of your overall portfolio. This information is not intended to provide investment advice.

Interested in reading more?  Here are some articles that may be of interest to you:

CLICK HERE TO READ THE ARTICLE “Stocks and the meaning of 'long term.'”

CLICK HERE TO READ THE ARTICLE “An investing legend who’s nailed the bull market at every turn sees no end in sight for the 269% rally.” 

CLICK HERE TO READ THE ARTICLE “‘Unnerved’: These 5 Big Wall Street Players Are Predicting a Downturn.” 

CLICK HERE TO READ THE ARTICLE “Should You Invest As Usual When Stocks Are This High?” 

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Raymond C. Lantz, Jr. is the president and founder of USA Wealth Group, Inc. Ray has many years of experience advising clients in retirement and sophisticated tax planning strategies, multi-family and commercial real estate projects, and legacy planning. Ray is a graduate of Clark University, holds a law degree from Boston College, and a master of laws in taxation from Boston University. You can hear him every Sunday on Money Wise with Ray Lantz on WBSM 1420AM or on the Radio Pup app.