Retirees can get their financial A-game on by acting on the difference between asset location and asset allocation.
Retirees fixated on income and traditional deductions could do well by shifting their focus to tax management instead. Applying a financial planner’s tax management expertise can offset the impacts of taxes that often go unrecognized.
Tax management, especially in retirement, is a frequently overlooked aspect of personal finance. However, it’s also an opportunity for improvement under the watchful eyes of a skilled and knowledgeable retirement planning specialist. Three causes of negative tax impacts are inaction, inattention and unfamiliarity, all of which can be addressed in pursuit of additional spendable income.
Retirees who frequently fret about inflation, income and lost cost-of-living allowances (three times in six recent years), could benefit by instead paying more attention to tax management. Despite the potential reward of additional spendable income, taxpayers are often reluctant to re-locate assets within their portfolios in order to reduce taxes.
Tax complexities can induce “paralysis by analysis,” and progress may only occur when the need for action exceeds the fear of making the change. The clarity that a retirement plan specialist can provide to the asset re-allocation/tax reduction process is exemplified by a quote from Roy Disney, co-founder of the Walt Disney Company, who said, “When values are clear, decisions are easy.”
A greater understanding of Social Security can also deliver a tax and spendable income benefit. Lulled by automated payments that land in bank accounts monthly like clockwork, many retirees lose sight of the fact that their paid benefit is net of deducted taxes. Also forgotten or misunderstood is that monthly Social Security benefits are impacted by separate income sources, and that the net result of the interplay can be a higher tax bracket. As a counter, additional spendable income may result from enlisting the help of a tax-trained retirement plan specialist. He or she can comb through often-ignored year-end statements to identify missed opportunities and the effects of “stealth” taxes built into railroaded legislation.
Unfamiliarity with family finances is another source of confusion and negative tax consequences. Men typically take the lead in financial matters – and death for that matter – leaving an often-inexperienced widow to manage the remaining estate. Perhaps unknowingly at first, the surviving spouse will experience a Social Security benefit reduction and the loss of an exemption at tax time. To potentially offset these impacts, a retirement plan specialist with a broad view of tax implications may provide several course-correcting recommendations.
While it may be natural to prioritize income and standard tax deductions, this may actually miss the bigger household financial picture during retirement. Instead, a proactive and educated stance on taxes may ultimately deliver a better bottom-line result.
Syndicated financial columnist Steve Savant interviews top retirement specialists in their field of expertise. In this segment we’re talking to certified financial planner, registered financial consultant and certified tax coach George McReynolds. Right in the Money is a financial talk show distributed in daily video press releases to over 280 media outlets and social media networks.
