Retirement and Sheltering in Place
Retirement and Sheltering in Place – Eric Johnston, CFP, InFocus Financial Advisors
While we are in what is likely to be a worsening global pandemic situation, we remain optimistic that we will all get through this together. We will all need to do our part and reduce the spread of this challenging virus. While doing that we can be quite anxious, and a bit of cabin fever may even kick in. When we have this extra time, it is always good to stay busy. With that in mind, here are a few items we are working with our retired clients on, and you can be proactive and work on them too.
Retirement Design – The cornerstone to every well-planned retirement is your annual list of expenses. If you know what they are now, what you are doing over the next three years, and what one-time expenses you have upcoming, you can plan properly. If you are sheltering in place, there is likely a reduction in your lifestyle expenses and you could potentially reduce any withdrawals that you might be making from retirement account. This can reduce any losses you might incur from selling while the market is down substantially. This also has the nice side effect that reducing withdrawals may also reduce your income taxes.
Cash Reserves -- If you hadn’t already set aside enough in your investment accounts to cover at least a couple years of your monthly distributions during a market downturn, you may think its too late to do so. It very well may be without incurring significant losses. However, many people are investing in fixed income and bond positions outside of their stock investments. This may be a resource for continuing to take your monthly withdrawals if needed. Great care is needed in making these decisions as depending on what type of bond positions you have, as even your bond holdings may have dropped in price. Also, depending on your unique asset allocation you may not want to deplete your bond positioning. A careful review of your more stable investment and cash is in order.
Required Minimum Distributions Suspended -- If you were required to take minimum distributions from your IRA’s and retirement accounts, these have been suspended for the remainder of 2020. Reducing or even eliminating these “no-longer” required minimum distributions can reduce your taxes for 2020. For some who have taxable social security benefits this can be a significant way to reduce your taxes – especially if you have cash or other less-taxable accounts from which to draw.
Stay Up-to-Date – Most of us have some extra time at home (more than usual) so what better time is there for some learning? There are hours and hours of fantastic podcasts to take in. Podcasts are audio updates, lessons, tips, and strategies offered similar to radio shows. They are easily accessed from websites who host the shows or on iPhones, for example, from your Podcast app. You can search for any topic you might want. Search Google for “retirement podcast” and you’ll get quite a few. For a sample, our company podcast on retirement strategies is on our website at www.retireinfocus.com/podcasts. Help yourself!
Roth Conversions During Down Markets – For the savvy adventurer, you should at least consider the possibility of converting your Traditional IRA’s and retirement plans to Roth accounts. This requires you to pay income tax on the amount of the IRA you convert; therefore, it must be said that this should not be done on your own, without careful analysis, and preferably professional planning. The basic idea of converting while the market is down is that you convert more shares at a lesser value when the market is down. If you convert $50,000, that used to be $60,000 in value hypothetically, you can convert at a lesser tax cost. The taxes may be $10,000 or more so ask you CPA or tax preparer before doing this. So, after taking out the tax cost you might have $40,000 left over. If history works as a guide and the market recovers within a couple years, you may have your $50,000 again, and maybe soon after your $60,000 -- now in a Roth IRA and tax-free. Roth IRA’s are not subject to required distributions to add to the benefit.
With so much time on our hands, there may be a lot of productive tasks we can get done. Stay safe, stay home, stay healthy. We hope you might make some great use of the extra time at home too.
The views are those of and Eric Johnston and should not be construed as specific investment advice. Investors cannot directly invest in indices. Past performance is not a guarantee of future results.
Investments in securities do not offer a fixed rate of return. Principal, yield and/or share price will fluctuate with changes in market conditions and, when sold or redeemed, you may receive more or less than originally invested. No system or financial planning strategy can guarantee future results.
Additional risks are associated with international investing, such as currency fluctuations, political and economic stability, and differences in accounting standards.
Investment Advisor Representative offering securities and advisory services offered through Cetera Advisors LLC, member FINRA/SIPC, a broker dealer and a Registered Investment Adviser. Cetera is under separate ownership from any other named entity. 327 Tilghman Road, Salisbury MD 21804.