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5 Important Retirement Planning Strategies Before You Retire

bigstock-Couples-Outdoors-Laughing-4133957.jpgReady to retire? Ready for endless amounts of free time? If you answered with a big "YES", then there are a few things you might consider before you jump all in. This can be an exciting and scary time for you. It's exciting to not have to clock-in from nine to five during the workweek. However, it is scary to wonder how will you sustain yourself financially without a consistent paycheck. One out of three Americans have not saved any money for retirement. What about social security? Unfortunately, the American people cannot rely on social security when we reach our golden years. The average amount of social security a person can expect to receive is a range from $1,163 to $1,348 a month. With that amount, how can anyone expect to retire? The answer is to plan ahead!

There are some strategies you should consider on your journey to full retirement, which include: retirement accounts, investment strategies, pension options, retirement account protection strategies, and essential estate planning documents to have before you retire.

1. Retirement Accounts

There are a wide variety of different retirement accounts a person can choose from, and all of them have their advantages and disadvantages. There are three main types of retirement plans:

· Individual Retirement Plans: IRA's, Roth IRA's, myRA's, and rollover IRA's

· Employer-Sponsored Retirement Plans: 401(k)s, Roth 401(k)s, 403(b)s, 457(b)s, and Thrift Savings Plan

· Retirement Plans for the Self-Employed or Small Business Owners: Solo 401(k)s, Solo Roth 401(k)s, SIMPLE IRA's, SEP IRA's, payroll deduction IRA's, and profit sharing plans.

The six most common retirement accounts include: IRA's, Roth IRA's, 401(k)s, Roth 401(k), SIMPLE IRA's, and SEP IRA's.

Individual Retirement Account (IRA)

An IRA gives an individual more control over how they want to save/invest for their retirement. An individual is responsible for setting up a retirement savings accounts at a financial institution, such as a bank or brokerage firm, to hold investments. An IRA allows an individual to contribute up to $5,500 per year that is tax-deferred until it's withdrawn at the time of retirement. If you decide to withdraw early, before you are 59 ½ to be exact, then you will pay a penalty fee and subject to federal, state, and local income taxes. However, you are required to take minimum distributions once you've turned 70 ½. An IRA is an investment account, which means, once you contribute money into the account then you can buy and sell investments (stocks, bonds, mutual funds, ETF's, etc.) within the IRA. This allows your account to grow more quickly! Another reason someone may decide to choose an IRA is the contributions you make could possibly be deducted from your taxable income for that year. You can deduct your full contributions for that year if:

· Single, Head-of-Household, or Qualifying Widower, who is not eligible to receive an employer-sponsored retirement plan at work.

· Married, filed jointly or separately with a spouse not covered by a plan at work.

· Married, filed jointly, one spouse is covered by a plan at work and make $186,000 or less.

Roth IRA

With a Roth IRA, there are a few differences compared to a traditional IRA. Contributions limits are the same as a traditional IRA, but it will be based on your Modified Adjusted Gross Income (AGI). To view whether your contributions to a Roth IRA is affected by the amount of your modified AGI: Click here. Another thing to consider with a Roth IRA, contributions are taxed at the beginning, but any money generated within the Roth IRA or any money withdrawn from the account is not taxed. The down side: unlike a traditional IRA, Roth IRA contributions are not deductible from your taxable income. However, it does give your future self a huge tax break. You can always thank yourself later!

401(k) Plan

A 401(k) plan is usually offered as a benefit to full-time employees. It allows an employee to make pre-tax contributions to a tax-deferred investment account within the company plan - typically through payroll deduction - with the possibility of the company matching your personal contributions (e.g. dollar-for-dollar) up to a specified percentage, which amounts to free money to you! Contributions made to your 401(k) will reduce your taxable income for that year; however, since you are receiving a tax break upfront, you'll owe taxes upon withdrawal at retirement. The main disadvantage to an employer-sponsored retirement plan is you are limited to certain investment choices within the plan, but you do have control over how much you want to direct each contribution to each investment option. Another thing to consider is a company may have a restricted schedule based on how long the employee has worked for the company until the money becomes his or her property. Speak with your HR department to find out more information about your 401(k) plan.

Roth 401(k) Plan

If a Roth IRA and a 401(k) plan had a baby, then it would create a Roth 401(k) plan. This type of retirement account is still relatively new, so most employers may not offer this type of plan. A Roth 401(k) has all the same features as a traditional 401(k); however, contributions are after-tax dollars from your paycheck, but it won't be taxed again during withdrawal at retirement.


A Savings Incentive Match Plan for Employees Individual Retirement Account (aka SIMPLE IRA), is an employer-provided retirement plan offered by small companies to employees. A SIMPLE IRA is a tax-deferred account, and works very similar to an IRA as contributions are pre-tax dollars; however, your employer is required to match your contribution amount.


What happens if you are the boss? What type of retirement plan is best for you? The answer is a Simplified Employee Pension Individual Retirement Account (SEP IRA). This retirement account allows you to make contributions from your income and it is fully deductible from your taxable income for that year. A SEP IRA acts just as a traditional IRA would because it follows the same investments, distributions, and rollover rules as a traditional IRA.

No matter which retirement plan you choose, you are not restricted to only having one retirement account. For example, if you have existing 401(k) plans from former employers, you can consolidate them into a rollover IRA. Another thing to consider, you can always take your 401(k) or IRA plan and move it into a Roth IRA to pay the taxes early, and then you can enjoy tax-free growth up to your retirement.

2. Investment Strategies

Even though you've worked hard and saved for retirement, you may out live your savings. Because life expectancy is generally increasing, you want to plan ahead before your bank accounts run down to zero during your lifetime. One way to continue potential growth is through investment strategies. Some investment strategies can include purchasing mutual funds, ETFs, stocks, bonds, and cash investments.

Mutual Funds

Mutual funds are investment strategies that allow you and an investor to pool your money together to purchase stocks, bonds, and other securities for your investment portfolio. Mutual funds are a cost-effective and efficient way to invest because you are able to invest in hundreds - sometimes thousands - of individual securities at once. Just as the saying goes, you are not putting all of your eggs in one basket. Mutual funds provide less risk with more diversification. With that being said, it is hard to manage it all by yourself, but you can have an expert manage and track every security your mutual fund owns.


An ETF, also known as Exchange-Traded Fund, is a single investment that holds stocks and bonds. It is similar to a mutual fund as it provides diversification, but ETF's allows you to buy or sell shares anytime during the trading day. Generally, ETF's are easier to manage than a mutual fund, so any associated costs to manage the ETF will be lower.


You may have heard the term "owning stock in a company." What does that mean? A stock is an ownership share in a corporation, but not all corporations sell stock. Generally, a company will be held as "private" until it is seeking funds for it to grow. At that point, the company will "go public," and sell either preferred or common stock to its investors. How do you make money? When the company decides to issue dividends to its shareholders. Typically, common stock entitles you to shareholder voting rights that allows you to participate in the profit and growth of the company; however, common stock shareholders are the last to be paid when a dividend has been issued. With preferred stock, you do not have any shareholder voting right, but it is a fixed dividend that is paid out every month, quarterly, or annually. Preferred stock shareholders will also be paid before common stock shareholders in the event that the company needs to liquidate its assets due to bankruptcy. You also can make money owing stock as the price of the stock goes up or down.


Corporations, States, Cities, and the Federal Government issue bonds to help raise capital for new technology, build new roads, improve schools, etc. How do bonds work? Think of a Bond in the same way as an IOU, but with interest. The bond issuer promises to pay the lender the full loan at its scheduled maturity date and provide regular interest payments on specific dates. Overall, bonds can help provide stability to your investment portfolio.

Cash Investments

Cash investments are typically less risky than other forms of investments, but offer lower returns. There are two options for cash investments, which include: certificate of deposits (CDs) or money market funds. CD's work very similar to a savings account, but you are required to deposit a specific amount of money during a fixed time period. Afterwards, you will get back your principal with interest. As for money market funds, it is a mutual fund that are held in a portfolio of short investments, typically for less than a year, that is high quality, liquid debt and monetary instruments.

3. Pension Options

Pension plans are very rare today. Currently, only 14% of employers offer a pension plan to their employees. What is a pension plan? Pension plans are very similar to a 401(k); however, the employee does not make contributions from their paycheck. Instead, your employer promises to pay a certain amount (either monthly payments for the rest of your life or a one-time lump sum) when you retire. The amount you receive will be based on the years you've spent with the company and how much you've earned in salary. Because employers promise to pay a certain amount during an employees' retirement, it does requires an employer to have a lot of capital to fund and maintain all employees' pension plans. This is why pension plans are rare and mostly offered to employees from a large corporation or government agency workers. Although, pension plans were very popular around World War II and into the eighties. The reason is, during that time, people were more likely to stay working for the same company that they started at the beginning of their career until they retired. Now, people are more likely to jump from employer to employer, so having a 401(k) plan that can rollover into an IRA seems more realistic than having a pension plan.

If you are about to retire and have a pension plan, you may be wondering if you should take an annuity over time or a one-time large lump sum. The lump sum can be enticing for most people, but that's exactly what companies want you think to reduce their obligations and future financials. Ultimately, it will come down to whether or not you want to have a continuous stream of income or take all of it at once. Here are some of the disadvantages for taking a monthly annuity and lump sum:

Monthly Payments Disadvantages

· It is not protected from inflation, and your monthly payments will lose purchasing power.

· If your company is unable to continue to make payments, a federal agency called the Pension Benefit Guaranty Corporation (PBGC) will pay a portion of it up to a legally defined limit.

Lump Sum Disadvantages

· You have to make the funds last throughout your retirement

· If you do take the lump sum and do not rollover the proceeds directly into an IRA or 401(k), it will be taxed as ordinary income and you may be pushed into a higher tax bracket.

· If you take a distribution before the age of 59 ½, you will be subject to a 10% tax penalty for early withdrawal.

4. Retirement Account Protection Strategies

Depending on your state laws, your retirement accounts may not be completely protected from creditors. If a creditor files a judgment against you, they may seize all or part of your retirement accounts. In Texas, all of your retirement accounts have unlimited protection during your lifetime. Awesome! However, as soon as your retirement accounts are inherited it no longer holds protection capabilities, even if, it is a rollover IRA. Oh no! How are you going to protect your beneficiaries' inheritance from creditors, predators, or lawsuits? A Standalone Retirement Trust (SRT) is a special type of revocable trust that will protect your retirement savings from being snatched up by strangers or the courts.

Reasons a Standalone Retirement Trust is Right For You:

· Protects inherited retirement accounts from beneficiaries' creditors as well as predators and lawsuits

· Ensures retirement accounts goes to whom you designate - no one else

· Allows for experienced management and oversight of assets by a professional trustee, if you necessary to protect beneficiary's reckless spending or gambling habits.

· Enables proper planning for the special needs of beneficiary

· Permits you to name minor beneficiaries as immediate beneficiaries without court-supervised guardianship

· Facilitates generation-skipping transfer tax planning

· Protects inherited retirement accounts from being seized in the event of divorce

As estate planning attorneys, we constantly look for ways to protect our clients as well as their loved ones and assets. That's why we suggest we have a conversation about your retirement accounts and together determine whether a retirement trust is right for you.

5. Other Estate Planning Documents

As you reach retirement, there are other things to consider other than taking that dream vacation you've been planning for years, but never had the time. It is important to think about what you would want to do if you become incapacitated or what happens after you pass. How are your assets going to be distributed after you pass? What happens if you get Alzheimer's disease? If you become brain dead, do you want life-sustaining procedures to keep you a live as long as possible? These are not the fun questions to think about when you reach retirement; however, they are imperative, not only for yourself, but for your loved ones as well. Let's face it. Soon enough, we all won't be spring chicks anymore. By creating a comprehensive estate plan, it will provide structure for your loved ones if you become incapacitated or the moment that you pass away. A comprehensive estate plan should include:

· Last Will and Testament

· Guardianship for Minor Children and/or Client

· Durable Power of Attorney

· HIPAA Authorization Form

· Medical Power of Attorney

· Advance Health Care Directive

· Disposition of Remains

Click here to read the different estate planning documents and how they will work for you.

Contact Kiefaber & Oliva LLP

As our client at Kiefaber & Oliva LLP, we will make sure that you are protected in every way possible by making sure you have the proper estate planning documents that will meet all of your goals. We understand that every family's situation is different, and our clients deserve more than a cookie cutter estate plan. At Kiefaber & Oliva LLP, we tailor your estate plan to match your exact needs and desires. After meeting you and assessing your personal goals, our attorneys will work closely with you to create a secure and enduring estate plan. Contact us today to schedule your initial consultation. Contact us at (713) 229-0360 or by Email.

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