The Secret to Maximizing Your Retirement Savings
Most of us have set money aside into 401(k)s and individual retirement arrangements (IRAs) for decades. However, few of us fully understand the nuances that will enable us to maximize the funds that we’ve set aside in these savings vehicles. These aspects become increasingly important to understand as we approach retirement age and enter the “home stretch” of retirement. Today we’re speaking with Chuck Omphalius, Managing Partner of Max It Out Retirement about retirement planning and strategies.
WPBF: Hi Chuck, we’re going to jump right in. Can you tell us a little bit about your philosophy when it comes to planning for retirement?
Chuck: Many people focus on putting money aside for retirement in 401(k)s or IRAs, which is important. However, most fail to consider other external factors that might significantly impact retirement funds: taxes may be higher in the future than they are today, healthcare costs are rising, and as we’ve all seen in the last year, the market can be extremely volatile. Generally, people who are close to retirement age should focus more on maximizing how much of their money they can keep rather than how much money they’ll have; broadly, it’s about: 1) minimizing the amount the government can tax and 2) mitigating market risk.
Retirement Contributions and Planning
WPBF: Ok, that makes sense, so let’s say I’m 55 and have a 401(k) that I’ve been contributing to for the last 30 years. What can I do to ensure I maximize the funds that I’ll have at the point of retirement in a few years?
Chuck: When you’re about 10 years out from retirement, it’s going to be about three things:
First, reducing your risk — if nothing else, the last year has shown us how unpredictable and volatile the market can be. Moderate to high levels of risk are absolutely unnecessary when you’re getting close to retirement.
You’ll also want to understand your backdoor Roth options, which in my experience, few people do. Backdoor Roth’s can be used by just about anyone, even if your income is too high to be eligible for a traditional Roth IRA. Additionally, unlike a traditional Roth IRA which has a contribution limit of $7,000, with backdoor Roths, the only limit is how much you yourself feel comfortable converting.
And finally, stop contributing to your 401(k) above your employer match. I know this goes against most advice that people are used to hearing but stop. Taxes are lower than at any point in history (combined with massive federal debt), so you’re better off taking your income now at a lower tax rate rather than deferring to 10 years out when the tax rate will likely be higher.
WPBF: Let’s say I’m on the other end of the spectrum and haven’t been great about putting money aside. Now I’m about 10 years out from retirement and I’m not sure I have enough saved. Am I doomed? Or is there something I can still do between now and retirement?
Chuck: Power saving is key here. Figure out what your disposable income is and stop disposing of it. Once you determine what you have and what you can save, you need to remove as much risk as possible and take all unnecessary future taxation off the table. The more you have that the government can’t tax and the markets can’t lose, the better off you are.
Tax-advantaged Retirement Strategies
WPBF: Shifting gears a little bit — I’ve seen you talk about tax-advantaged retirement strategies in other forums. Can you tell me a little more about what you mean by that?
Chuck: I would break this into two parts, with the first being Roth IRAs. If you are eligible, Roth IRAs are great because they offer you tax-free growth and tax-free withdrawals in retirement. If you have current IRA money that is eligible for an in-service rollover then backdoor Roth’s are also great. The second part would be understanding the tax code, which can be complex, specifically 7702A. At Max it Out Retirement (MIORET), we can help you better understand what the options are for earning gains on your nest eggs without taxation through the understanding of the tax code, specifically code 7702A.
WPBF: When you refer to 7702A, is that the same umbrella that a Life Insurance Retirement Plan falls under?
Chuck: Exactly. A Life Insurance Retirement Plan (LIRP) follows the 7702A guidelines and gives an individual the same tax-advantaged benefits as Roth IRAs without the limitations and restrictions. Working with a professional that understands LIRPs is critical as they can help you craft an appropriate LIRP strategy. Having a well-designed LIRP strategy can be the answer to a long and lucrative tax-free income stream for retirement.
WPBF: This makes me feel like I need to find someone to work with as soon as possible. I’ve never worked with a financial planner. If I work with MIORET, what can I expect?
Chuck: Everything that I’ve said above applies. Our team will give you the truth about taxes. We’ve had decades of experience working with people who are close to retirement and understand that is not the time for risk. We’ll offer ideas that do not involve market risk and principles that are based on strategies that focus less on what you have, and more on what you get to keep and spend in retirement.
WPBF: Final question — given your decades of experience, what do you not see people taking advantage of today that would be easy to do?
Chuck: This is less about taking advantage, per se, as much as something to stop doing. People should stop making 401(k) (or any deferred compensation) contributions that are not being matched. If it isn’t being taxed today, it’ll be taxed in the future. And given the current tax environment, you’re better off paying the taxes now and figuring out a strategy for how to best allocate those funds.
Learn more about Chuck Omphalius and Max It Out Retirement’s services on their website.