Month: July 2024

The view from the plane as we flew onto Mt. Denali for a May, 2017 attempt is burned into my memory. The long sprawling glaciers occupying the lower mountain, littered with hundreds of 2,200-foot-deep crevasses, bore the ‘Big three’ dangers quickly to mind: slip-n-fall, crevasse fall, and avalanche, in that order. This was the culmination of a dozen years of dreaming, praying and planning; these risks were present, and those crevasses looked like big hungry mouths to me! Accumulating real wealth, meaning wealth that is increasing after taxes and inflation, sufficient to fund a potentially long and expensive retirement in a high inflation society comes with its own ‘Big Three’ hazards: inflation, tax hikes, and the high cost of care late in life, in that order. Consider the landscape of these risks as you find great solutions in the planning of your own financial future:  

• The Fed systematically creates inflation to fund government deficit spending, and then understates it so government payments rise slower than real inflation. Wealth production requires an after-tax return greater than real inflation, not achievable with a 5% CD or Money Fund. Many Americans are watching their bank account values grow, but their real (after taxes and inflation) wealth grows not! Real wealth production requires risk taking and exposure to the asset classes that have performed best during inflationary times: real estate, high quality stocks, and other hard assets. Be sure to maintain liquidity, manage risk, and take a long-term view with invested assets.

• Be convinced it is inflation you fight, not deflation. Thousands of middle-class families have been impoverished for lack of understanding this. The primary enemy is not volatility, but Federal Reserve Notes, and anything easily converted into them. Be liquid enough to handle prolonged volatility but fear the ‘Notes’. It is logical in inflationary times that high quality assets, especially when producing a stream of present income, should cost more Notes, not fewer to buy.  

• Retirement account values are high, tax rates are historically low, and budget deficits are unhinged. Never has it been more important for Americans to have a smart long-term tax plan.

• The “Tax Cuts and Jobs Act” is set to expire December 31, 2025, after which income tax rates may rise. The assumption of retiring to a lower tax bracket may be faulty, and the IRS is co-owner of all traditional retirement accounts. Choose to pay more taxes at lower rates, pay less taxes at higher rates, and minimize lifetime taxes by: a) understanding the taxability of your Social Security payments, b) utilizing a non-retirement brokerage account for annual tax-posturing and tax-loss harvesting, c) considering “Backdoor” and strategic annual Roth Conversions, d) factoring future RMD’s into your tax and retirement plans, e) participating in Qualified Charitable Distributions and f) a Health Savings Account, and g) aggressively funding traditional accounts in high-income years.¹

• Commit the issue of the care you will require as the older body breaks down to your thinking. Think about where you will receive this care, from whom, how it will be funded, and the implications to your loved-ones. Your personal Plan of Care will likely be multi-faceted, so be patient, keep notes, and stick with it. 

Warren Buffet and others contest the most important aspect of investing is “avoidance of a catastrophic loss.” The ‘Big Three’ dangers on Denali formed a prism of risk awareness, and then risk mitigation, that proved most helpful to our team. Use your knowledge of inflation, the probability of future tax hikes, and the high cost of care late in life to sharpen your financial plan.

Think about it, Shaun.

“But my God shall supply all your need according to his riches in glory by Christ Jesus.” ~Philippians 4:19

1 Smart Asset, “5 Tax Strategies for Your Retirement Income,” July 12, 2024

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks, including possible loss of principal. Any opinions or forecasts contained herein reflect the subjective judgments and assumptions of the author.

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.

My vegetable garden always looks incredible in late May following the spring rains. The beds are orderly and full, plants flourishing, early harvest active, and weed containment stellar; but nature is persistent, and as the daily workload increases in mid-summer’s soggy heat, the war on weeds invariably morphs into a furious battle to save the harvest! Just as the gardener benefits not from that which is grown but from that which is harvested, a retiree profits not from wealth that is accumulated but from wealth that is retained after Uncle Sam takes his share.

The first step in effective retirement planning is to realize that tax planning is an indispensable factor, and the goal is not necessarily to minimize taxes each year, a primitive strategy which can end terribly during one’s retirement, but to creatively minimize the total taxes paid over one’s lifetime. The second step is to work with a CPA who embraces this concept, which likely contradicts their early education, and who owns the responsibility not merely to prepare your annual return, but to work with your advisor to achieve this end. To these you also want to consider adding the following tax strategies:

• Maintain a cost basis for each asset on your Net Worth Statement and a total cost basis for your estate. This will drill the aforementioned truths into your thinking and inspire you to become an effective tax planner.   

• Maintain emergency savings equal to nine months of household spending. This will prevent you from paying taxes and penalties on retirement plan distributions to cover unplanned expenses. 

• Utilize advanced planning software to compare the ultimate tax benefit of Roth vs. Traditional vs. after tax accounts to your personal plan. Appropriate contributions based on your findings.  

• Fund a non-retirement brokerage account (NR-Brokerage Article) and benefit from annual tax harvesting and other versatile tax features.

• Use low income/low tax bracket years to increase the cost basis on appreciated assets and offset high income/high tax bracket years by skewing retirement contributions towards traditional accounts.

• Investigate Strategic Annual Roth Conversions (SARC), particularly between post-full employment and commencement of Required Minimum Distributions (RMD’s, age 73) to lock the tax in at a lower rate and reduce future RMD’s exposed to potential tax hikes.

• If over age 70½, consider Qualified Charitable Distributions (QCD), especially if you are receiving unneeded RMD’s and/or already give regularly to a 501(C)(3) organization, but KNOW QCD RULES.  

• Make sure your retirement and estate plans are tax savvy and highly complementary organisms.

Each year I try to add a new weed-fighting technique to the containment strategy to increase the ultimate yield. I believe it will benefit your family immensely to do the same as you plan your financial future with the aid of an intelligent tax plan.

Think about it, Shaun.

“In an abundance of counselors there is safety” ~Proverbs 11:14

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any opinions or forecasts contained herein reflect the subjective judgments and assumptions of the author.

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.