There are many retirees who for some time have felt secure in taking periodic withdrawals from their savings but are finding – due to the status of their financial planning, or the lack thereof – that they may outlive their income.
At the same time, people all over the country are thinking about their finances as Tax Day draws near. Additionally, the real estate market has begun to stabilize and continues to show signs of improvement, and the stock market has recuperated such that people are beginning to feel that they’ve recovered a fair amount of what they lost during the economic downturn. For all of these reasons, it is vital to discuss with your clients alternate methods to unlock access to cash flow to support their retirements.
While net worth is nice, cash flow is king, so it is more important than ever that we uncover the means to generate cash flow, particularly for those in the retirement stage of life. The sale of a primary residence is one method that creates cash flow. In this scenario, a married couple can receive up to a half a million dollars without paying capital gains taxes.
Above all else, timing is perhaps the most important component to consider when withdrawing assets from different accounts. It is critical to evaluate whether your clients should be taking money from accounts that have already been taxed and postpone taking money out of plans that are still growing tax-deferred, like an IRA account or a tax-deferred annuity.
You can’t spend net worth unless you convert it to cash, so it becomes your job to find the most cost- and tax-efficient ways to transform the big numbers showing on the balance sheet into direct deposits of cash flow into the checkbook that will be there for the rest of their lives.
In the words of philosopher George Santayana, “Those who cannot remember the past are condemned to repeat it.” This well-known quote certainly applies to those approaching their senior years. As trusted advisors we must motivate our clients to learn from the mistakes made by those who have gone before them in preparing for their futures.
Provide them with examples of the plight of those in the current senior generation who failed to plan for their retirement years. Doing so will serve as encouragement to your 50-something clients to adequately prepare for the transition from accumulating money to a time when they no longer want to work for their money and would rather their money worked for them.
As the dust begins to settle from our present-day woes, many are ready to tackle their plans for the future. Be sure you are there to turn dreams into realities.