retirement planning

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Why Tax Planning for Retirement is Non-Negotiable

Retirement image example

Why Tax Planning for Retirement is Non-Negotiable

Nobody enjoys tax planning. The only thing less joyful perhaps is having a tooth pulled or estate planning. However, if you are entering into those years where retirement is on the near horizon, tax planning for retirement is absolutely and essential task—unless you enjoy the thought of your hard earned money and business equity evaporating into the always welcoming hands of the IRS.

Tax planning is essential as it helps you make those big decisions that impact behaviors, from spending to how your business will exit, pass to another generation, or be sold. It also helps to determine your savings needs, spending habits, and even how you treat other real property you may own. For these reasons and more, it might be time to consider hiring a retirement planning consultant to help you sort things out.

Retirement Goals

Establishing your retirement goals is a good, foundational start to your planning. Ask yourself and your spouse (please don’t assume that your spouse will be on board with your plans!) about dreams and wishes once career days are done.

Here are a few important decisions to discuss:

  • What do you want to do in your retirement?
  • Where will you live?
  • Do you expect to maintain your lifestyle?
  • What kind of hobbies do you anticipate enjoying?
  • What sort of investment will those hobbies require?
  • Do you have other maintenance or debt obligations (like mortgages, college loans, or pending nuptials of children) that could impact your retirement savings?
  • Do you plan to continue working after retirement? 

Asking these questions is the first step to being able to develop a budget for your retirement years. In order to live in the style and comfort you are accustomed to, you need to be able to understand the cost of your ongoing obligations. Many couples realize that even with aggressive retirement savings, maintaining a lifestyle they have become comfortable living may not be possible without an income stream. Your goals don’t need to suffer, however, but they may need to be altered, or choices made to prioritize what is truly important to your happiness. The point is, with your retirement goals understood, you have facts needed to develop a plan.


Every dollar saved is important in retirement. If you have a high take-home income, and expect to maintain your lifestyle and spending habits in retirement, your long-term savings will need to be significant.  If not, you need to make some hard decisions about today’s spending, emergency savings that may be required, or other adjustments in lifestyle and plans to accommodate a more realistic and sustainable life on a budget.  If you are younger, this is the perfect time to move money into savings, particularly a ROTH IRA, where you pay the income tax today and  make withdrawals tax-free after retirement.

Spending Analysis

This is the difficult part. Most people don’t look too hard at their spending habits. Credit card charges might be reviewed occasionally to see if there are erroneous charges, but what about the interest you are paying?  Shopping for a lower price credit card might save you hundreds of dollars in interest each year, especially if you keep a large balance. And stop charging (and keeping a balance) your credit card for perishable items like meals, gasoline, and routine services. Instead, pay cash, or use your debit card. Those cash back cards are fine, but not if you are letting them charge you 29% interest. That extra $500 a year in credit card interest, if placed in your retirement investment savings for 25 years can blossom into thousands of extra cash when you need it in retirement.

You may also discover you have memberships that you never use, or waste money on items that don’t really add value to your comfort or enjoyment. There is an energy and excitement to be gained by rejecting this type of spending, and rechanneling it into savings that builds your future. Every dollar counts!

Another consideration is how you buy things. Especially big ticket items, such as cars and appliances. Do you buy on impulse? Or when the item is beyond repair and you are forced to act? Getting a full life from an appliance or vehicle is great, but being forced to make a purchase rarely saves you money. There is a balance between value and economy. Car buying, for example is where many families end up spending way more than they need to, only because they act on impulse, or out of dire necessity. How? Because dealers will work hard to extract as much money as they can from the transaction, from financing to trade-ins, extended warranty options and more. If you arrange bank financing from your own bank prior to your purchase, you can almost always find a better option.  The cost of financing needs to be viewed in its total, not just monthly payments.  Saving $100 a month sounds wonderful, but not if you are extending payments from 60 months to 72. 

The point is, smart buying is just as important as smart savings. Some people will forgo ever buying a new car in order to save instead for a vacation home that might become their retirement home. Or, to fund their retirement account closer to their budget goals. The choices are there, but they require some discipline, and sometimes, a bit of short-term hardship.  Then again, it is not really hardship if you are chasing your dream retirement goal, is it?

Business Assets

Whether you own a business, a part of a business, or perhaps investment real estate, business assets play a huge role in your retirement—and require tax planning to maximize the value of those assets come retirement time.  How—and when—you liquidate your business assets can have an enormous impact on your tax liabilities. There are ways to mitigate this issue, however, and a heart-to-heart discussion with your tax planning professional is essential to making the right moves to protect and maximize your business asset’s value.

Other Revenue Streams

Do you own art, precious metals, or passive investments such as patents, intellectual property, or collectables? Many people find these investments much more enjoyable than traditional retirement savings. However, such investments can be a huge red flap for the IRS, and you need to plan carefully as to how and when you let go of these investments, if they are part of your retirement plan.

For one thing, value can fluctuate wildly over time. There is no guarantee that your precious items will find a buyer ten or twenty years from now. Art may go out of style. Collectables that are all the rage today might be out of fashion as time goes on. They might also become super rare. The problem from a retirement standpoint is, if you don’t turn them into cash when you feel they have reached their height of popularity, you might want to consider your ownership a hobby, and not an investment. And, as for value, remember that every dollar redeemed from these items is a taxable event. Selling them, even at a profit, will still cost you up to 40% in value for taxes, and if you wait until retirement, that might be a painful transaction to make.


Tax planning for retirement is a far-reaching analysis of your assets, your savings, and your spending. With your goals fully understood, your tax planning professional can devise strategies to maximize the value of your assets, minimize your tax obligations, and give you a solid roadmap for reaching a financially sound retirement.

We invite your thoughts and questions. If you need to speak with someone about your tax situation and your retirement goals, feel free to call or email us today.


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Five Things You Will Need to Do to Retire Your Business

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Five things you will need to do to retire your business

Deciding to retire from your business is a big decision. Every business owner should have an exit strategy long before the decision day arrives to sell, merge or sell the business. As it is likely the largest asset you possess, getting things right is critically important. While there are a myriad of details to consider, here are five of the big concerns you should put on high priority as soon as possible, regardless if your retirement is five years or five decades from today.

ONE: Look at Your Business as a Spectator

It sounds weird, but taking a mental step back from your daily operations in order to see your business as an interested spectator is a great way to understand how your business operates—and what might need to change—in order for you to successfully ease out of the company.  Every business is unique. Ideally, you began thinking about your exit strategy the day you took the owner’s chair. What needs to happen to replace you as the chief?  Consider the operational, sales, and leadership aspects of your position:

  • Is there a clear leader who can replace you? Is that person interested in ownership?
  • Are there functions that might need to change without you there? Can other people be trained?
  • Will you need to bring in managers to build a layer of operations to permit the company to run without you there?

As a spectator, you may also see that your business might fold strategically into one of your competitors. On the other hand, you may discover that it can operate without you, and maybe a prospect for an employee buy-out (ESOP) or a key employee buy-out.  Your self-examination gives you the information and shopping list needed to move your business into position for transition.

It may also be time to start having conversations with employees, friendly competitors, and others to understand what options might work, and what is off the table.

TWO: Determine Your Current Business Value

Some people have built a business; others have found a way to work for themselves, but their company has no (or very little) value without their direct participation. The difference can sometimes be tough to determine and might be a bitter pill to swallow if you discover the business you thought you were building was really just a job.

The point is, it is important to understand the actual potential value in the marketplace every few years and to understand when it may be time to cash out, even if it might be a couple of years shy of your planned work retirement. Talking to a valuation specialist, or a business broker will also help you understand if you built a job or a company that has value beyond your physical presence.

In addition, understanding the value of your business broadens your perspective. Through the lens of a buyer, you might suddenly understand that your business is missing new services and products that enhance its value and move you in new growth directions.

THREE: Assess Your Retirement Spending Needs/Goals

Accountants always worry that their client’s lifestyle and habits are often detrimental to their future wealth and retirement. Just like having the difficult talk about your will and estate, it is very important to periodically assess your retirement spending plans, needs, and goals.  Think about your lifestyle and what might need to change. If you live in a big house or a state with a large tax bill, can you and your family be happy moving to a more retirement-friendly state? Do you need to begin purging unneeded things in order to move to a smaller space? Is your credit card always melting from overuse? Are there other substantial debts that need to be addressed before you stop drawing an income?  If your lifestyle cannot be funded under your retirement budget, it is a guaranty that you will burn through your savings in your advanced years. Establishing your monthly/annual spending and household budget isn’t fun, but it will provide for frank discussions about how much you need in retirement, and lets you know what you will need to extract from your retirement savings and your business exit when the time comes.

If building a budget is a task that never happens, it may be time to reach out to your accountant for assistance.

FOUR: Determine Your Retirement Horizon

Some people say they will “die with their boots on” while others think it would be perfect to be sitting in a beach chair sipping cold drinks on an island somewhere full-time by age 55. Whatever your dreams are, now is the time to determine your retirement horizon.  How many years will it take to earn enough to fund your dream retirement, and what is your retirement age goal?  If those two things don’t match up, it is time to make adjustments to your plans. Increase savings. Perhaps take a few more investment risks. Look at business opportunities that will grow the business to where it can fund that goal. Of course, it may be time to become more frugal in spending habits, and lastly, it may be time to realize your goals may be too rich for you to reasonably achieve.  Again, your accountant can help guide you through this process and give you the tools you need to be financially successful.

FIVE: Examine Your Assets and Retirement Savings—Are your strategies up to date?

Once you have examined the potential value of your business and assessed your spending needs as well as your budgeting goals, it is critically important to do a complete review of your retirement assets to determine if your savings plans are on target.  Your accountant and your financial advisor can be extremely helpful in determining your savings needs and risk tolerance as well as determine if you need to make adjustments in order to reach your goals. Are there alternative investments that might help balance your need for guaranteed cash?  Do you require life insurance to help pay for estate taxes and other expenses if you or your spouse passes away unexpectedly, leaving your assets at risk? Periodic reviews of your savings and security plans are important because everyone’s life and priorities change over time. Children grow and have babies of their own. Quite often, we see a client’s plan to move to another state upon retirement are abruptly altered when the first grandchild arrives. Your health may change. Your business may become too much to handle as you age. Of course, the investment marketplace is always changing, and your excellent plans may need to be revised. The fact is, life has a way of playing havoc with your plans, so a periodic review with your accountant and your financial advisor (and of course your lawyer) are simply smart investments in time every few years.

If you would like to learn more about business succession planning, please feel free to contact one of your professionals.