Your Income Plan: It may work, but is it optimized?
Jeff Martin is a financial advisor at Cornerstone based in Reno, NV. Jeff has earned the Life and Health Insurance Licensure and has passed the Series 65 examination. He enjoys being able to help clients create customized strategies for their portfolios based on their unique financial goals.
YOUR INCOME PLAN: IT MAY WORK, BUT IS IT OPTIMIZED?
I recently had the opportunity to teach my son about something he will be exposed to his entire life. He had just come off a stretch of good behavior, and wanting to employ some positive reinforcement, I rewarded him with a treat of his choice. Just rounding 4 years old, I have found this to be helpful. He ended up selecting some gummy bears. Seeing an opportunity for a life lesson (and some delicious gummy bears), I ate a few, and was met with a quizzical look, to which I replied: “taxes bud.” I am fully aware the point was lost on him, and entirely premature on my part, but the truth remains: it’s not what you have, but what you keep that matters. This is very much the case when referencing income.
Quite often, not much, if any planning takes place when folks are considering their income plan. I am regularly met with a similar quizzical look from individuals when I initially ask what their income plan is. I should add that a conversation such as this with a financial professional is the appropriate first step.
It is not uncommon to hear something along the lines of “I will receive $X from Social Security and I’ll pull the rest from my assets.” This is not problematic at its foundation, but there is much more to it. The type of asset (IRA/ROTH/Non-retirement), how, and when you draw from them has a substantial impact on the end result.
There are a number of considerations that should be made prior to designing a plan. Some of which include: how much income is needed/wanted (is the withdrawal rate on the assets sustainable long term), the current tax environment, and assessment of what it could look like in the future, a surviving spouse situation (both from a tax perspective as well as income replacement needs), accounting for inflation, the impact a significant market event could have, to name a few.
I encourage folks to employ a different thought process than “my friend or family member did it this way, so that’s what I will do.” Each individual situation is as unique as a fingerprint, and what may make sense in one situation, could have no business being in another. The point being, that in order to capitalize on one’s hard work and effort in saving for retirement, a custom plan should be designed with the consideration of that individual’s priorities, and unique situation. In the absence of this approach, and just “winging it,” it is quite likely that someone will pay more taxes, create an undesirable situation for a surviving spouse, or “the plan” not work at all leading to destitution. In the last couple of weeks, I have had several clients reach out to me as a result of their information being compromised. Not only is this a stressful, time-consuming event, but in some cases, real damage can be done. Fortunately, in the situations I mentioned above, they were able to get in front of the fraudulent efforts before any real damage was inflicted.
With a quick Google search, I found that identity theft costs on an annual basis are estimated to be $50 billion a year! You read that right, billion, with a “b.” Moreso, the average loss per individual due to the misuse of people’s information is $4,800. We live in a fast paced, electronic world that we can only expect this to continue and grow.
As with most problems and challenges, precautions can be made to reduce the chance of, or overall impact of an adverse situation becoming your own. I will share a few that are worth considering as it relates to this topic.
First, practicing internet caution. Some examples of this would be things like, not using shared networks to access sensitive information, not clicking links in emails (particularly if you do not recognize them), using different, and strong passwords for sensitive sites. A password manager can be helpful with this unless your memory is far better than mine. Last, but certainly not least, consider having some sort of identity theft protection with a reputable company. This can also be a defense against a potentially frustrating and damaging situation. Some of this may seem remedial, but as the saying goes: “the devil is in the details” and ensuring even the “small stuff” has a check mark next to it is worth the effort in my mind.
Based in Reno, NV, Cornerstone is for individuals and families looking to grow wealth, protect and preserve their life savings, and plan for the distribution of their estate in a tax-efficient manner through a tailored strategy. Schedule a time to discuss your financial goals with us.