Ask the Expert Summer 2024
by Chuck Riggs
There are so many options when it comes to planning for retirement. What should investors consider when evaluating the various types of retirement plans?
There are several factors to consider when deciding which types of retirement plans to utilize. These include availability of plan options depending on your employer or your business structure, limitations on contributions based on income, available current tax deductions and future tax implications of withdrawals, age and health, and personal financial goals. For example, should you contribute to a traditional IRA for a current tax deduction or a Roth IRA for future tax-free withdrawals? The answer to this question will depend on your eligibility to contribute to an IRA, your current tax bracket versus expected future tax bracket, and when you will need to access the funds.
Creating a comprehensive financial plan is one way to determine your best course of action when it comes to saving for retirement. A financial plan should consider all aspects of your current financial status (income, assets, liabilities, amount of annual savings, etc.) and project the probability of success of reaching your retirement goals. When you have a clearly defined vision of your retirement and an understanding of how to get there based on your current financial status, then you can decide the types of accounts to use to help achieve your goals.
Some investors chose to work with wealth management advisors and others choose age-based portfolios. What are the pros and cons of each option?
Working with a wealth management advisor provides access to the expertise of a financial professional who can assist with things like filtering through unlimited fund choices, guidance on contribution and distributions rules, and the impact of beneficiary selection. Wealth management advisors also have expertise in constructing portfolios for the appropriate amount of risk you want, or are able, to take. They can make timely decisions based on access to a vast amount of market research and keep the portfolio in line with your goals.
This expertise comes with a cost, which can be more than age-based funds or other packaged investment solutions. Investors should weigh the benefits of working with a financial professional versus the cost of doing so, and the impact on the potential to reach their retirement goals.
If someone is using an age-based portfolio, or target date funds as they are commonly called, he or she is primarily managing risk based on one factor—age. In age-based portfolios, the further out a person is from retirement, the riskier the allocation will be. This allocation becomes more conservative as the person gets older and is closer to retirement. These types of portfolios are a simple solution for an individual managing funds on their own.
While these funds are generally less expensive than hiring an advisor to manage your assets, these portfolios do not consider an individual’s personal risk tolerance or goals. Again, weighing costs versus benefits is an important exercise in preparing for your retirement.
What strategies should investors consider when it comes to providing philanthropic support to their favorite charitable organizations while maintaining their personal retirement goals?
The amount of philanthropic support an individual should give to their favorite charitable organizations, while maintaining their personal retirement goals, depends upon several key factors:
- Cash flow requirements for their personal needs and goals
- Family support obligations
- The stability of the organization they are supporting
- The tax advantage of giving a charitable contribution
- The length of time they are committing to give the support and the amount needed
Based upon these factors above, you can then consider strategies such as:
- Cash versus in-kind gifts
- Direct gifts to the charitable organizations versus indirect gifts through tools such as a Charitable Remainder Trust or Donor Advised Fund
- Gifts during your lifetime or as part of your legacy through wills and trusts
When it comes to retirement planning, what times should people keep in mind? How often should someone review their plan prior to retirement and how can retirees ensure that they stay on track throughout their retirement years?
Retirement planning can start at any age, but the earlier you start the better off you are. Compounding interest works in your favor, and the power of time is on your side when you’re younger. At a minimum, consider getting serious about planning for your retirement in your fifties. This should give you time to build wealth for your future goals and correct course if you’re not on track to reach those goals.
Once you’ve defined your retirement goals and know the best path to make those goals a reality, you should review your plan at least once a year. A plan review should consist of, but is not limited to, reviewing:
- Financial Goals
- Financial resources and liabilities
- Estimated time until retirement
- Portfolio allocation and investments
- Portfolio performance
- Account beneficiaries
The Citrus Group can be contacted through their website at https://advisor.morganstanley.com/the-citrus-group, and include members who are UF graduates, past Florida Blue Key members, and passionate Gators fans.
CRC 6625999 05/2024