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THREE’S A CHARM: A perfect world for the future retiree

September 23, 2014

More and more of my clients are coming to me before retirement to come up with a liquidation strategy. They don’t want to take anything out of their tax-free or tax-deferred account – and that is a HUGE mistake! They aren’t using what the government is giving them. They aren’t using their personal exemptions and their standard deductions. After all, when you look at tax brackets, a single person is up to a 15% bracket on $36,900 of income. Then you add in the standard deduction of $6200 and their personal exemption of $3950 and a single person can have over $47,000 of income and remain in a 15% bracket. A married couple filing jointly falls into the 15% tax bracket of up to $73,800 of income. If you add in standard deductions and personal exemptions they can almost go up to $94,000 and still be in the 15% bracket.

 

Now if you don’t need all the money to maintain your standard of living, then what you should be thinking about doing is filling up the tax brackets. For example, if you only need $50,000 to live off of, you could take $40,000 out of your traditional IRA and convert it to a ROTH. Then you would have the opportunity to start building up that tax bucket as well.

 

This is why I highly recommend having three buckets of money when you are ready to retire:

  • The taxable account: This would include a brokerage account, a mutual fund account or a CD accounts.

  • A tax deferred account: a 401k or an IRA.

  • A ROTH IRA and/or Municipal Bonds.

Having these three buckets offer such flexibility that will lead to more of a relaxed retirement.

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This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. Please consult with a professional specializing in these areas regarding the applicability of this information to your situation.

Andrew Wood, Dan Simon and Alison Slezak are Investment Advisor Representatives. Advisory services are offered through CoreCap Advisors, LLC., a Registered Investment Advisor. CoreCap Advisors, LLC and Daniel A. White & Associates, LLC are separate & unaffiliated entities. 

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