Is Your Portfolio Ready for Retirement? What area do most retirees overlook that could improve their retirement?

Retirement is a monumental milestone, a time to enjoy the fruits of years of diligent work and savings. However, many investors think that’s where their retirement planning ends. Instead, it’s a continuous, never-ending process because money will always be a factor in their decisions.

We call this process Kaizen Financial Planning, because, like the famous methodology the Japanese used in their factories, it’s precisely a process of continuous improvement where there’s always room for optimization.

One of the areas with the most significant opportunities for value creation is Tax Planning. Still, paradoxically, it’s one of those areas that most retirees forget or procrastinate about, either due to lack of knowledge or because they think they’ll have time to think about it later.

For example, a well-thought-out strategy for withdrawals from your portfolio can make the difference between a comfortable retirement and one with unexpected tax burdens.

1. Understanding the Tools: The Three Pillars of Your Portfolio

Before you can build a tax-efficient withdrawal strategy, you must first understand the types of accounts you hold. Each serves a unique purpose and comes with its own set of tax rules.

• Taxable Accounts (Brokerage Accounts): These accounts are often the primary source of cash for retirees, as they provide immediate access to funds without age restrictions or penalties. You have already paid income tax on the money you contributed, but you will pay taxes on any earnings, such as interest, dividends, and capital gains. A key strategy here is to manage the timing of your capital gains. By selling appreciated assets in a low-income year, you can potentially pay a 0% capital gains tax rate, a powerful benefit that many people overlook.
• Tax-Deferred Accounts (Traditional 401(k)s and IRAs): These are the most common retirement savings vehicles. You contribute with pre-tax money, which reduces your taxable income for the year you make a contribution. Your investments grow tax-deferred until retirement. However, the catch is that every dollar you withdraw is taxed as ordinary income. The challenge lies in strategically managing these withdrawals to avoid being pushed into a higher tax bracket, especially as you approach your 70s.
• Tax-Free Accounts (Roth IRAs and Roth 401(k)s): Roth accounts are often considered the crown jewel of retirement accounts. You contribute with after-tax money, meaning you receive no tax deduction for your contributions. But in return, all qualified withdrawals, including all growth, are completely tax-free. Furthermore, Roth IRAs have no Required Minimum Distributions (RMDs) during the original owner’s lifetime, making them an incredible tool for legacy and estate planning.

By coordinating withdrawals from these three pillars, you can manage your taxable income each year and potentially avoid jumping into higher tax brackets, which could save you thousands of dollars in unnecessary taxes.

Don’t Run Out of Money in Retirement! The Right Order to Withdraw Funds:

2. The Art of the Withdrawal Sequence: Key Strategies for Boca Raton Retirees

The order and timing of your account withdrawals are determining factors in the longevity of your savings. A proactive approach allows you to:

a) Avoid the RMD Trap. Required Minimum Distributions (RMDs) are an IRS requirement that force retirees to withdraw a percentage of their tax-deferred accounts starting at age 73 (75 beginning in 2033). If not planned correctly, they can push you into a higher tax bracket, even if you don’t need the money. The penalty for not taking the RMD on time is a brutal 25% of the amount not withdrawn. A solid strategy helps you manage these mandatory withdrawals, so they don’t affect your financial health.

b) Control Your Medicare Premiums (IRMAA) A higher taxable income can increase your Medicare Part B and D premiums through the Income-Related Monthly Adjustment Amounts (IRMAA). Each dollar that pushes you past a new income threshold could double your monthly premiums, costing you thousands of dollars annually in healthcare expenses. By carefully planning your withdrawals, you can help keep your income below IRMAA thresholds.

c) Execute Strategic Roth Conversions. A Roth Conversion is not a simple decision; it’s a complex tax strategy. Moving funds from a traditional IRA to a Roth in lower-income years can be a brilliant move. By paying the taxes now, you ensure those funds and their future growth are completely tax-free for you and your heirs, protecting you against potential future tax rate increases. A Roth Conversion only makes sense if a detailed analysis of your current and projected tax situation shows that the future benefit outweighs the current cost. This is especially relevant in years when you might have a lower income, such as between retirement and starting Social Security.d) The “Filling the Bracket” Strategy. This is one of the most sophisticated and effective tactics. It involves withdrawing funds from your tax-deferred accounts to “fill” the lowest tax bracket each year (e.g., the 12% or 22% bracket). By doing this, you pay taxes on a portion of your IRA at a low rate and cover the rest of your expenses with funds from your taxable or Roth accounts. This allows you to reduce the size of your tax-deferred accounts before RMDs begin, thereby minimizing the impact of future mandatory withdrawals.

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3. The Value of a Fiduciary Advisor: A Partner, not a Salesperson

Navigating these complexities requires a personalized strategy. An independent, Fee-Only financial advisor can be an invaluable resource. The distinction between types of advisors is crucial for your financial well-being.

• Fee-Only vs. Fee-Based: A Fee-Only advisor is compensated solely by the fees you pay, which can be an hourly rate, a flat project fee, or a percentage of the assets under management. They do not accept commissions, referral fees, or other forms of third-party compensation. A “fee-based” advisor, on the other hand, charges a fee for their services but also earns commissions from selling financial products, insurance, or investments. This creates potential for conflict of interest.
• Fiduciary Standard: A fiduciary advisor is legally and ethically obligated to always act in your best interest. They must put your financial well-being above their own compensation. Most Fee-Only advisors are fiduciaries, but not all “financial advisors” operate under this standard.

According to a 2024 article in The Wall Street Journal, less than 2% of the more than 285,000 financial advisors in the United States are Fee-Only. They are a needle in a haystack. The majority are “fee-based,” meaning they earn commissions on sales, which can create a conflict of interest.

4. Common Mistakes That Cost You Thousands

Investors often make costly mistakes simply due to a lack of information or a lack of a cohesive plan. Some of the most common include:

• Ignoring Income Thresholds: A common mistake is a large, unplanned withdrawal that pushes a retiree’s income above the threshold for Social Security taxation or Medicare premiums. This can result in an unexpected “tax torpedo” that reduces their benefits and increases their expenses.
• Leaving Money on the Table: Failing to analyze the benefits of a Roth Conversion can mean leaving a significant opportunity for tax-free growth and a tax-free legacy for heirs on the table. With tax cuts set to expire in 2026, the window for this strategy is particularly attractive.
• Not Consulting a Professional: Many retirees hesitate to seek professional guidance because they fear a high-cost, long-term commitment. However, many fee-only firms offer hourly or project-based services, providing the expertise you need without the commitment of full-service management.
• Believing Withdrawal Sequencing Doesn’t Matter: The way you withdraw your money can be just as important as the way you invested it. A poor strategy can cost you tens or even hundreds of thousands of dollars over a 20–30-year retirement.

5. A Personalized Approach for a Solid Future

There is no one-size-fits-all approach to retirement withdrawal strategies. What works for one retiree in Boca Raton may not work for another. A personalized retirement plan considers factors such as your current and future income levels, your risk tolerance, your legacy goals for your heirs, and your health status.

An advisor can help you design a strategy tailored to these unique needs. Don’t let the complexity of tax rules and retirement withdrawals erode the wealth you worked so hard to build.

Conclusion

Preparing your portfolio for retirement goes far beyond contributions. It’s about having a clear plan and a tax strategy to protect the wealth you have built with such effort. A well-thought-out plan gives you peace of mind that your wealth will not only survive but also thrive, serving a greater purpose and ensuring peace of mind for you and your family.

If you are ready to secure your financial future, we invite you to contact us.

Alonso Rodriguez Segarra – CERTIFIED  FINANCIAL PLANNER®

Which provides hourly, fee-only, and fiduciary financial planning services. He has over 27 years of experience in the financial world and has been named among the Top 100 Financial Advisors in the US by Investopedia and by etf.com

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Note: The comments given in this guide are for educational purposes only. Before    making a financial decision, consult your financial advisor or conduct appropriate research. Remember that historical results are not a guarantee of future returns. In    the comments provided, this guide does not consider tax impacts. Always consult your particular case with a specialist. We are not your financial advisor, so remember that each case differs.

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All rights to this guide are reserved, and the occasional mention of third-party brand names is made solely for educational and reference purposes, without any interest in financial gain. This information is for educational purposes only and does not represent an offer of products or services.