Retirement income planning resembles popular cooking shows: Take these ingredients. Create a gourmet meal. The timer is running. Go!
Most retirees have what they need in the pantry—IRAs, 401(k)s, taxable brokerage and advisory accounts, Social Security, life insurance, and annuities—but don’t understand how to coordinate it all to create a retirement spread that is tasty, filling and nutritious.
So, they turn to advisors, whose old cookbooks haven’t kept up with software advances.
What’s The Biggest Enemy Of Maximizing Retirement Income? Taxes.
Evan Simonoff, editor-in-chief of Financial Advisor magazine, recently described four approaches to converting retiree assets into income that Wade Pfau analyzes in his new Retirement Planning Guidebook. Their views have merit, but each approach misses one critical technique: addressing taxes, the most significant potential deflator of retirement income.
For years, my father, Nobel laureate Paul A. Samuelson, and I fielded questions from friends and family about succeeding as investors. My father was close to Jack Bogle and offered him the same advice over four decades ago—keep costs low, diversify, buy and hold, to avoid capital gains taxes for as long as you can.
People With A $500,000-$3 Million Retirement Nest Egg Benefit Most
After much analysis, my father and I understood taxes are the number one threat to maximizing retirement income. Sure, the very wealthy can reduce taxes on bequests with the help of tax and estate lawyers. But people who have set aside $500,000 to $3 million for retirement are another category. And they are your clients. They have much to gain and a lot to lose if they don’t have a strategy for addressing taxes.
My father’s and my advice may have helped those who were accumulating assets, but it was inadequate for the challenge of withdrawing assets for income in retirement. My LifeYield colleagues and I addressed that shortcoming. We developed software for advisors to help clients build tax-efficient household portfolios while accumulating wealth and then maximize retirement income through tax-efficient withdrawals.
Complex? Yes. Impossible? Not when advisors embrace advanced technology.
Coordination Is The Key To Maximizing Income
Over 13 years of showing advisors how to reduce clients’ tax bills, we’ve learned the secret sauce is in the coordination of the four key levers to improving outcomes: lower costs, manage risk, minimize taxes and optimize Social Security.
Many of the largest financial advisory firms have integrated our software. Advisors can show clients how to get the most out of their retirement savings with three alpha-generating actions: