The Mindset Shift You Need for Better Retirement Planning

 

 

Hey there! I often see people building a retirement portfolio the wrong way. Not only do you need to do the right things to plan for retirement but you also have to consider the environment you are retiring into.

The House Analogy

 

Ever heard the saying, “An ounce of prevention is worth a pound of cure”? Think of it like this: building your retirement is a lot like constructing a house. Would you rather build your dream house from the ground up with careful planning, or to build a house with some random blueprint you found on the internet, and then spend a fortune rearranging rooms and fixing things that don’t fit your vision?

Just like with building a house, it's way easier to get things right from the start rather than trying to fix them later. This is especially true when it comes to managing your taxes and retirement savings. Remember an ounce of prevention is worth a pound of cure

 

Why Taxes Matter

 

Here’s a little background on why tax planning is so important: we’re dealing with record national debt, and it’s growing. The two main ways to address this are to either cut spending or increase revenue through taxes. Guess which one is more likely? Yep, raising taxes.

 

Here’s how it works: if the government needs more money, they could either boost the economy so that existing tax rates bring in more revenue, or they could raise tax rates. Since boosting the economy significantly is tough and not guaranteed, higher taxes are the more likely route.

 

Looking Back to Look Forward

 

Let’s take a quick trip down memory lane. Back in the year 2000, the national debt was about $5 trillion, and we were running a surplus. We had more money coming in than going out. Fast forward to today, and our national debt is approaching $35 trillion, with spending vastly outpacing revenue.

Here's the issue - lots of folks are planning for retirement - using pre-tax vehicles like Traditional IRA's and traditional 401(k) contributions - just like they were back in 2000. While the national debt has increased more than 6x since that time, and we continue to run record deficits people are still constructing portfolios without considering the change in the financial environment.

 

Planning Ahead

 

This is where proactive tax planning comes into play. Instead of waiting until you're retired and dealing with higher taxes, it’s smarter to plan ahead now.

 

Here are some things you should consider:

 

-Roth Contributions: If you’re in a lower tax bracket now, consider putting money into a Roth IRA or Roth 401(k). This way, you pay taxes on the money today and enjoy tax-free withdrawals in retirement.

 

- Tax-Conscious Investing: Think about converting traditional IRA funds to Roth IRAs, using HSA accounts, and even harvesting tax losses. These strategies can help you manage your tax bill more effectively.

 

- Coordinate with Professionals: Work with both your financial advisor and accountant to create a tax-efficient retirement strategy. They should be looking at minimizing your lifetime tax liability, not just focusing on saving on taxes this year.

 

The moral of the story? Don’t just go through the motions with your retirement planning. Take a proactive approach to manage your tax liability. The sooner you start planning, the better off you’ll be in the long run.

If you're looking for some help in putting together a tax efficient retirement strategy - book a chat with us right here.

 

Happy planning, and remember: a little foresight now can save you a lot of hassle later!

 

Antonio