Broker Check
If I Could Only Teach One Financial Lesson

If I Could Only Teach One Financial Lesson

| February 05, 2021
Share |

As a financial advisor, I have come across dozens of financial strategies during my decades in the financial services industry. Many of these strategies are sound pieces of advice I use with my clients to create comprehensive financial plans that include secure retirements. However, if I could hammer home just one thing that is critical for a healthy retirement plan, I would tell older professionals looking to retire about the three tools of diversification. 

As I outline below, I recommend diversifying more than just your investments. There are other diversification strategies that will help you pay less in taxes and keep more money in your retirement accounts. By using these three diversification tools, you may be able to protect your wealth—and your lifestyle—as you move through your retirement years. 

The Three Diversification Tools 

The importance of diversifying your investments is well known, but have you ever considered the importance of time and tax diversification? Time, tax, and investment diversification are all part of a comprehensive and thorough financial plan that will help you manage your retirement successfully. Unfortunately, time and tax diversification are less well known than investment diversification, but they are equally valuable strategies. 

Time Diversification

The concept behind time diversification is that by withdrawing from the correct account at the right time, you will avoid having to withdraw funds from your retirement while the market is down. This is important because you do not want to withdraw funds when the market is going through a slump as this will compound your losses.

The idea is that investors should put their assets into several different buckets to keep risk tolerance low. By withdrawing money from certain accounts at the right time, you may be able to maintain your lifestyle throughout retirement.  

Tax Diversification

It goes without saying that the less you pay in taxes, the more money you will have to fund your retirement. Tax diversification strategies include accumulating your assets into certain accounts for the best possible tax outcome. 

Withdrawals from Roth IRA accounts or 529 plans are tax free. Income from municipal bonds and payouts from certain life insurance policies are also typically tax free. Accounts like 401(k)s, 403(b)s, and IRAs are tax deferred, meaning you will have to pay taxes on the funds you withdraw at some point. (1)

Investment Diversification

As you probably are aware, a diversified investment portfolio uses a mixture of different investments, such as stocks, fixed income, and commodities, to help mitigate risk. Investment diversification works because different assets will react differently to economic events.

Planning Is Essential

Regardless of your strategy, all accounts and investments should focus on a common strategy that encompasses a thorough and detailed retirement plan. Planning is absolutely essential to ensure that your wealth is protected and your lifestyle is maintained well into the future. 

If you are looking to tweak your retirement plan or you think it could use an update but are not sure where to start, we are here for all your retirement planning needs. At Bridgerland Financial, we are professionals who strive to smooth out the transition between your working years and retirement years, and in doing so, we create comprehensive retirement plans that encompass strategies to allow you the peace of mind to retire with confidence. Schedule an appointment online or reach out to us at david.packer@bridgetoretire.com or (435) 535-1630.

About David

David Packer is founder and financial advisor at Bridgerland Financial, an independently managed financial firm in Utah. With 20 years of industry experience, David serves his clients by helping them bridge the gap between their working years and their retirement. He provides tailored, comprehensive financial plans to his business owner and individual clients so they can retire with confidence. David has a bachelor’s degree in finance and holds the Chartered Retirement Planning Counselor℠ (CRPC®) credential. Outside of the office, David loves to spend time with his wife and five kids and stay involved in his community. He currently serves on the board of directors of the Cache Valley Chamber of Commerce. He and his wife, Melonie, spent years as foster parents and eventually adopted their foster children. David loves playing and watching all kinds of sports, including officiating high school sports, and won’t turn down a good board or card game. Learn more about David by connecting with him on LinkedIn. You can also register for his recent webinar, “What We Do & How We Help.”

____________

(1) https://www.finra.org/investors/learn-to-invest/types-investments/retirement/401k-investing/401k-rollovers

A diversified portfolio does not assure a profit or protect against loss in a declining market.

A Roth IRA offers tax free withdrawals on taxable contributions. To qualify for the tax-free and penalty-free withdrawal or earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59 ½ or due to death, disability, or a first time home purchase (up to a $10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes.

Investors should consider the investment objectives, risks, charges and expenses associated with municipal fund securities before investing.  This information is found in the issuer's official statement and should be read carefully before investing.

Investors should also consider whether the investor's or beneficiary's home state offers any state tax or other benefits available only from that state's 529 Plan.  Any state-based benefit should be one of many appropriately weighted factors in making an investment decision.  The investor should consult their financial or tax advisor before investing in any state's 529 Plan.

For a comprehensive review of your personal situation, always consult your tax or legal advisor. Neither Cetera Advisors LLC, nor any of its representatives may give tax or legal advice.

Share |