I want to share an investment system for retirees to hopefully assist you as you’re thinking about and planning for your retirement. We’re also going to look at how to prepare your retirement for the multiple potential, potential economic seasons that we may be headed into.
So we want to look at the multiple seasons and then the easy system that’s going to help lower taxes and then lower risk as well. We help people plan for and implement these retirement strategies, really for a select number of people at Streamlined Financial.
That’s our retirement planning firm. So in order to create a proper investment plan in system, we want to make sure that we build out the retirement income plan first, because without the income plan, it’s much harder to design the right investment strategy.
It’s kind of like without the income plan, it’s like you’re guessing at, well, 60 40 portfolio sounds good, or maybe this amount in the conservative bucket sounds reasonable. You already know and you feel that as you get close to retirement, that goal of just more money isn’t the end all goal that we should really be aiming for.
For retirement, it’s more about sustainability and certainty and then really the certainty of income and possibly less risk than before the last 30 years. The things that you did to be successful with the financial side are going to look different than the next 20 or 30 years.
Now, if you need help defining the income plan a little bit, then look at the DIY retirement course below this video. Now, once you do define your goal goals for retirement and then the income needed to achieve those goals, then creating the investment system becomes a lot easier.
And within the investment plan, we really know that we can only control three things in all. Three things we actually want to minimize through this investment system. The first thing we can minimize or reduce is how much tax you pay when investing.
We had a client who was not a client of streamlined financial, but of a tax firm, come into the CPA firm in March to pick up his tax return. And he was completely surprised that he had 60 $0 of extra income on his tax return that he had to pay tax on right away before April 15, and it was due to the capital gains being recognized and other distributions within his investment account.
And he said, But I didn’t sell anything. And and the account didn’t even go up that much last year and I got to pay tax on it. But he was already in the highest tax bracket, paying about close to 37% on short term capital gains and dividends and interest.
So that was an unpleasant surprise, and we see it happen more often than it should. But this can really be avoided. And here’s two ways we can control tax so that we don’t have to have that happen and really just control tax and pay less of it is the goal.
And I’ll keep this at a high level, but it’ll get the point across. Number one is the kinds of investments that you own. Some are maybe funds or ETFs or individual equities or things like that. The funds and ETFs, they could pass on capital gains and distributions to you each year without you even doing anything, without you selling or buying.
But it happens within the fund a lot of times. Now, we would use funds and ETFs that are considered tax efficient so that our clients, they can decide when to recognize gains rather than letting the fund company decide.
Now, the second way is by using a strategy that’s called TLH. Each year, there’s many, many fluctuations or big fluctuations that happen in an investment account. And the strategy that we called TLH that allows our clients that’s tax loss harvesting, it allows them to sell an investment that may be down.
Part of the year and then move it into a very similar investment right away so that the investment strategy stays the same and they can actually take a write off on that loss on their taxes that year.
Now there’s some rules around this. Again, we’re going high level but it offsets, you know, for that one client who or not a client, but who had the big $60,000 of income, he could have been offsetting those capital gains by doing TLH or tax loss harvesting.
That strategy strategy has really saved hundreds and thousands of dollars for clients over a period of years. So onto the next thing that we can control in our investment plan and that’s cost this one’s easier.
But many advisors, they don’t do it because it ends up paying them less. Now, since we’re certified financial planner professionals, we do follow the fiduciary standard and we’re obligated to do what’s best for our clients.
So tell me this if you had two investments and they had the exact same strategy, the same returns, the same risk and the same tax efficiency, would you rather want the one that costs 0.5% per year or the one that costs twelve times more at 0.6%?
Well, I know the answer is obvious and we’d go with the lower cost funds. If it was all the same low cost funds and ETFs, that’s how we can really help reduce the cost. Or that’s how you can help reduce the cost in your investment plan because every basis, point or part of a percentage that’s saved in cost, it’s added to your return each year and this adds up to a lot over time.