I learned the importance of having a plan at a young age thanks to my dad’s homeless camp and lunches.
My father was a pastor, and he viewed helping the homeless as a calling. So, on Saturday afternoon, my family was preparing 125 lunches, with the contents of those lunches imprinted in my memory to this day — a bologna sandwich, a bag of chips and Little Debbie.
We’d get up at 6 a.m. on a Sunday, load lunch bags into a truck and drive to a park where the homeless camped. There we distributed sweets. Lunches came with no strings attached, but my father took the opportunity to invite people to church, and give them a hot lunch after service for those before the show.
It led to unforgettable trips from homeless camp to church, because my dad would always ask people to tell him their stories about how they ended up out of luck. With a click of the miles, I listened. Some people were successful at one point but weren’t prepared for the stock market crash that left their finances in ruins. Others fell on hard times after the death of one spouse. Whatever the story, a common theme emerged: they had no plan to withstand life’s toughest turns, and this was their downfall.
These stories made an impression on me while also teaching me this lesson: Life can happen to anyone at any time.
Whether we like to admit it or not, it’s true for you and me if we didn’t have a financial plan that would see us through our ups and downs. We all take a lot of risks in life, but your plan should address at least three of those risks: tax strategy, investments, and longevity.
It’s common for people to owe money on credit cards, mortgages, and car loans. But many people reach retirement without realizing that their largest creditor may not be one of them. Alternatively, it could potentially be the IRS.
That’s because a lot of most people’s retirement savings are comfortably put away in traditional IRAs, 401(k)s, or other tax-deferred accounts. However, things get uncomfortable when you start withdrawing that money because that’s the right time to get tax due. Over time, the money in these accounts has grown, which means that the amount owed in taxes has grown with it.
We have seen cases where individuals have been able to pay much less than they thought they would have to pay by employing a tax strategy that helps mitigate the greater tax burden now. That’s why we discuss potential tax liability with our clients; It’s an important part of overall financial health, especially in retirement.
Take this hypothetical example. If a customer grows their tax-deferred accounts to nearly $1.1 million, they might feel good about it—that is, until we get a real look at their potential tax liability. Leaving the money as is, over time, they will likely pay $500,000 or more in taxes. This obviously changes the picture, but what can they do about it? we discuss Transfer money to a Roth account. Grow Roth accounts are tax-free, and you pay no taxes when you make a withdrawal (as long as you’re 59 or more and have held a Roth for at least five years). You pay taxes when you make the transfer to Roth, but we’ve seen many times that it can be much lower than if the customer had chosen not to make the transfer.
This may be The right time to do Ruth Conversion because taxes are at some of the lowest levels in history. It might not last, though, because The Tax Cuts and Jobs Act of 2017which led to these tax rates being lower, to the end of 2025.
Everyone hears about the importance of diversification. But often, people aren’t really diversifying their assets – they’re just allocating them. They may invest in a variety of stocks, but diversity alone does not reduce the risk of market volatility on your portfolio.
Instead, what you’re looking for are different levels of risk. For many people seeking diversification, a portion of their financial portfolio should be daring, investing in stocks or exchange-traded funds (ETFs). This is where you can enjoy the biggest gains – but also risk the biggest losses. You may also want to get another portion of your money into medium to low-risk investments, such as bonds or real estate. Finally, you should have money set aside where it is not subject to the whims of the market, such as money market accounts, CDs, or Fixed Index Annuities.
On the surface, longevity does not seem dangerous. Long life is a good thing, isn’t it? But the danger here is that you can outlive your money. Many of the clients I see are baby boomers who have been taught about having a three-legged chair in retirement — Social Security, savings, and pension.
For many people, annuities are a thing of the past, leaving that figurative stool precariously balanced on the remaining shaky legs. Social Security can struggle to keep up with inflation, so personal savings can take on a large share of the responsibility for keeping the retirement chair in balance. With this in mind, we help direct our clients to use at least a portion of their personal savings to create their own pension, such as fixed-index annuities. This creates an income stream that can be seen through their retirement. We also use accounts that have some kind of passenger Long term care coverage or that has an income, like As a comprehensive indexed life insurance.
A good first step in creating your financial plan is to talk with your advisor about your goals and interests. In addition to your tax strategy, investments, and income, you may also want to discuss health care and inheritance.
Then your counselor should design a written plan for you that addresses these concerns and helps you achieve your goals. After that, I recommend meeting with your advisor at least once a year, so that both of you can review the plan and determine if it requires revisions due to changing circumstances.
Remember that life can happen to anyone at any time. A bologna sandwich, a bag of chips, and little Debbie might be a good lunch, but a solid financial plan is more nourishing for the long trip ahead.
Ronnie Blair contributed to this article.
Williams Financial Group, LLC is an independent financial services company that uses a variety of investment and insurance products. Investment advisory services provided only by duly registered individuals through AE Wealth Management, LLC (AEWM). AEWM and Williams Financial Group LLC are not affiliated companies. 1271539 – 22/4 All investments are subject to risks, including the potential loss of capital. No investment strategy can guarantee a profit or protect against a loss in periods of declining values. Any references to warranties or lifetime income generally refer to fixed insurance products, not securities or investment products. Insurance product guarantees and annuities are backed by the financial strength and claims-paying ability of the issuing insurance company. Please remember that transferring an employer plan account to a Roth IRA is a taxable event. Increasing taxable income from a Roth IRA transfer can have several consequences, including (but not limited to) the need for additional tax withholding or estimated tax payments, loss of certain tax deductions and credits, and higher taxes on higher Social Security and Medicare benefits premiums. Be sure to consult a qualified tax advisor before making any decisions about your IRA.
Founder of the Williams Financial Group
Stacia Williams is the founder of williams financial group. It helps clients pursue their retirement goals and dreams with well-thought-out financial strategies. Williams has an extensive background in working with people across social, economic and cultural divides, helping her company provide comprehensive and culturally relevant services to clients.
Appearances at Kiplinger were obtained through a public relations program. The columnist received assistance from a public relations firm in preparing this article for submission to Kiplinger.com. Kiplinger is not compensated in any way.