Money Minutes for Doctors #26 - Avoiding the Retirement Reef

We close out 2020 with a close look at the one of the more difficult segments of the retirement journey; those years leading up to end of the voyage. It is the final few miles that contain the unseen hazards that lurk just below the waterline, and it is not uncommon to bump into a rock (or two) before dropping anchor at the retirement destination. Our intrepid navigator of all things finance, Ms. Katherine Vessenes, JD, CFP®, RFC, Founder and President of MD Financial Advisors, is back to guide us through to a safe harbor.

About Ms. Vessenes:

Ms. Vessenes works with over 300 physicians and dentists from Hawaii to Cape Cod. Her firm uses a team of experts to provide comprehensive financial planning to help doctors build their wealth and protect their wealth while reducing taxes now and in the future. Katherine is a longtime advocate for ethics in the financial services industry; and has written three books on the subject of investment strategies. She has received many honors and awards including: numerous tributes from Medical Economics as a top advisor for doctors, multiple 5-Star Advisor Awards, honored as a Top Woman in Finance, in addition to being selected to be on the CFP® Board of Ethics. Katherine can be reached at: Katherine@mdfinancialadvisors.com or 952-388-6317. Her website: www.mdfinancialadvisors.com.

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Quick Summary:

(1)  When planning for retirement it is the 10 years leading up to and immediately after retirement are when you are the most vulnerable 

  • You cannot make up loses in the market. 

  • Loses are often amplified as you have more invested in the market. 

  • Your returns matter much more than any other time in your life.  

(2)   Sequence of Returns

  • You will not have the same returns each year on your investment

  • Average returns are not as important as the sequence of returns. 

    • bad years early on significantly impact your earning potential and you run out of money early (yellow line)

    • Average Returns Don’t Matter as Much during retirement.  

(4)   Changing Tax Brackets – 

  • Tax brackets changes due to congressional changes. 

  • Doctors personal tax brackets change due to transitions in employment income, optimizing your tax bracket can help limit your tax bracket 

(5)   Ordinary Dividend Tax – 

  • Doctors have large investments by retirement in non-retirement vehicles which are heavily exposed to ordinary dividend taxes.  

  • Ordinary dividend taxes are at your highest brackets (often 37% +) where qualified capital gains rates are usually lower (often 20%) 

  • Using the right investment in these types of accounts can save you thousands in taxes each year. 

(6)   NO Long-Term Care Plan

  • Long term care costs are unpredictable!

  • Needs can be expensive and go on for years

(7)   NO Asset Allocation Plan 

  • Your brokerage – 401k plan, ROTH IRA should be building different investments based on their tax efficiency

  • The differences can save you thousands in taxes upon retirement 

(8)   Unaware of Tax Bracket Arbitrage

  • Knowing how to optimize tax brackets in retirement is key

  • New taxes start at different income levels

  • Keeping taxable income under those thresholds can save thousands over time 

(9)   Low Bond Yields

  • We are at record low bond yields

  • There are alternatives to bond which still provide safety/security w better rates of return. 

 

Money MinutesKristina McAteerComment