If you don’t take control early, things like taxes and market swings can put a dent in your savings faster than you might think. But by addressing these risks head-on, you can avoid costly mistakes and feel confident about your financial standing when it comes time to retire.
Lane Martinsen, certified financial fiduciary, CEO and investment advisor representative of Martinsen Wealth Management, LLC shared this story about clients Bob and Linda.
“Bob and Linda’s confidence was high regarding their ability to retire comfortably because, between them, they had nearly $2 million saved in their 401(k) [plans],” he said. “While they felt like they were in a good position to retire, they did not have a written income plan. As we worked with them to develop a plan, they were surprised to see how much of their nest egg they would be losing to taxes over time.”
Martinsen explained that the financial advice the couple had received over the years from their CPA was to defer as much of their taxes as possible to the future, which would be during their retirement years.
“It had always sounded good, because it helped them reduce their tax bill each year,” he said. “But now they could see that they had a significant tax liability heading into retirement. They were even more surprised to see that it was not only the regular income taxes they would be paying, but also the additional taxes that get triggered, such as taxation on Social Security benefits and IRMAA/Medicare surcharges.
“We were able to show them the impact of RMDs (required minimum distributions), and they had not realized how much would be going to taxes. Holistic financial planning, which includes proactive tax planning, is something most people have never experienced. Uncorrelated and limited financial advice is the norm.”
“We implemented a Strategic Roth Integration strategy that shifted tax deferred dollars to tax free dollars over a six-year time frame,” explained Martinsen. “This strategy alone saved them over $400,000 in taxes over the next 20 years of retirement.”
Why It Was Effective
Martinsen said that comprehensive holistic planning is like putting together puzzle pieces.
“This includes coordinating and optimizing taxes, Social Security, healthcare — including long-term care — investment planning, housing, budgeting and estate planning,” he explained. “Bob and Linda were not accustomed to our comprehensive approach, but once we could show them the advantages of a good plan and they could see the potential improved outcomes, they were grateful and relieved to have a good plan.”
Retiring at an Optimal Time
Russell Hackmann, CFA and president of Hackmann Wealth Partners , shared a client story involving a single female client who was 61 and divorced with two grown children. She had a successful career as a senior account manager for a manufacturing company.
“She was about two years out from retirement with 401(k) and IRAs over $2 million,” he said. “Like many folks close to retirement, her company was starting to cut her pay and invent issues with her performance that resulted in her pay dropping.
“Her portfolio was almost all stock mutual funds and had worked well. We started working together in 2021, near the last market peak. Within those stock funds, there were many international stocks, including in Asia.”
Specific Strategies Implemented
Hackmann said that their analysis showed that the client could actually afford to retire immediately, but if the markets fell significantly, she might have to postpone her retirement for years.
“We took steps that moved money out of the stock market to take her risk below 50% exposure to the stock market, set up a lifetime income stream that effectively serves as a private pension, and kept plenty of liquid safe assets to prepare for retirement,” he explained.
Hackmann’s effective financial planning strategies worked, because the stock market took a turn in 2022. “In 2022, we all know that the stock market dropped 20%-30%,” he said. “The bond market fell, as well. International markets were hit particularly hard.”
Why It Was Effective
“She was able to enter 2023 knowing that her retirement was secure and did retire at the end of 2023,” said Hackmann. “I was able to provide the congratulatory toast at a retirement party hosted by her friends, kids and neighbors.”
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