Finance Your Future

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March 21, 2014

No matter how much you’ve earned, saved or inherited throughout your life, as you move toward retirement you need to make important decisions about how that money will work for you. The financial choices you make during your most financially productive years can significantly impact your ability to achieve your unique goals later in life.


“You also want to be smart about how you manage, allocate and draw down on funds later in life,” says Jason Whong, San Francisco-based Wealth Planner for The Private Client Reserve. “It requires thoughtful organization and decision-making to attempt to maximize your resources with your evolving goals and priorities.”


That means planning ahead and identifying your personal goals, says Kate Brown, Cincinnati-based Wealth Planner for The Private Client Reserve.

“You have to know what kind of life you want to live before you can figure out your cash flow

To strive to get the most value out of the assets you’ve spent a lifetime accumulating, consider these tips. Although you may have some well in hand, you may want to revisit others with your Wealth Management Advisor at The Private Client Reserve, your tax and legal advisors, and other professionals.

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March 21, 2014

Make a Realistic Retirement Plan

“Experience shows us that cash flow demands don’t change much after age 65, and in many cases they go up,” Brown says. More free time, coupled with a desire to travel and pursue hobbies, means incidental costs can rise, while expenses like mortgages may not go away.


To plan for your anticipated lifestyle, calculate the various income sources you will have access to and how this translates to monthly cash flow, Whong says. “You may lose your monthly salary but gain access to retirement accounts, pensions, Social Security and other income sources,” he says.


Once you know that number, do a cash flow forecast and build a budget. “A lot of high-net-worth individuals never think about having a budget — even a loose one — or tracking how much they spend. But unless you do that, you won’t know if you are spending more than what you have,” Whong says.


In addition, be careful not to underestimate howlong you may live after retirement. Today, the average life expectancy in the United States ismore than 78 years. This means many individuals may have a post-retirement investment horizon of 20-plus years.

Diversify Your Portfolio

As you near the later years of life, consider reassessing your portfolio allocation with the future in mind. A diversified portfolio may include a balance of different asset classes, which all come with unique risks. But what constitutes a smart balance depends on what you need the portfolio to do for you and when. “Your portfolio should reflect your financial as well as your time goals,” Whong says.


If you plan ahead to retire early, or even reduce time spent working, you may want to keep your assets intact and attempt to grow them semi-aggressively. “If you have 30 to 40 years ahead of you, you may have time to take on more growth-oriented investments,” he says.


On the other hand, if you have a shorter time horizon, you might want to be more conservative. While every investor’s needs are unique, individuals with shorter-term financial needs may move their assets to more liquid financial vehicles, says Michael Oehler, Trust Professional for The Private Client Reserve in Sacramento, California. Multiple factors need to be taken into consideration.

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March 21, 2014

Ensure Non-qualified Deferred Compensation Plans Don’t Pay Out Too Quickly

With non-qualified deferred compensation plans, an executive withholds a portion of his or her annual compensation to be invested. That income is then delivered to him or her over a pre-defined time in the future. “If you are highly compensated, deferred comp may be a great way to save money and defer taxes,” Brown says.


However, think carefully about the payout plan you choose and consider tax implications once you leave the job. For example, choosing a payout over five years might seem like a good idea when you establish the account. But $2 million saved would translate to $400,000 a year. Coupled with other sources of retirement income, the amount could easily place you into a higher tax bracket. Since every individual’s situation is unique, consult a tax or legal advisor for advice concerning your situation.



“When you choose your payout plan, or if you have the option to adjust it, make sure your time frame errs on the long side,” Brown says.


Consider the Tax Implications of Qualified Plans

The benefit of 401(k) and other deferred retirement savings vehicles is that you don’t have to pay taxes until you withdraw funds in retirement, when you may be in a lower tax bracket. But be sure you don’t put so much money into tax-deferred savings that it negatively impacts you later, Oehler says. Like non-qualified plans, too much deferred savings may unintentionally push you into a higher tax bracket.


Oehler has seen many clients set aside tax-deferred savings for charitable giving rather than take the tax hit because they had so many assets tied up in these accounts.


“As you approach your later years, consider how big your retirement accounts are, or could be, and whether you should continue contributing to them or start dialing back your investments,” he says.

Tips for Tapping Retirement Accounts

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March 21, 2014

If You’re Selling a Business, Consider Cash Flow

When owners get ready to exit or scale back their business, they make a number of financial, emotional and familial decisions related to who will take over the business. But one of the most important decisions is how to structure a financial settlement to ensure owners are financially secure once they step out of the leadership role.


Whether you sell the business to a stranger and walk away, or transition it to a family member and stay on as a consultant, the payout you agree to will directly impact your cash flow and the taxes you pay on the settlement, Whong says.


“The potential advantage of a structured sale isthat it pays out over many years, it may haveless of a tax impact and it may provide a steady income stream during retirement,” he says. The disadvantage is you don’t have a large lump sum up front that you can put to work for you immediately and you’re financially tied to the new owners, whose choices you may not agree with.

“A lump sum payment, on the other hand, provides an immediate liquid asset, which allows you greater control over your ongoing investment strategy and eliminates the risk of default,” he says. But you may pay higher taxes on a lump sum and lose that income stream, which means you may have to look at other ways to generate income going forward. It’s important to weigh all the variables, including who you are selling to, when making these decisions.


Rental Property Is Good — If It Generates Income

In retirement, rental property can potentially be a reliable source of income. But if it’s not handled correctly, it can also be a drain on your resources.


Investments in real estate securities can be subject to fluctuations in the value of the underlying properties, the effect of economic conditions on real estate values, changes in interest rates and risks related to renting properties (such as rental defaults).

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March 21, 2014

For working professionals, rental properties that don’t generate income often are used to offset taxes, but that’s no longer a useful strategy in retirement. “Real estate in retirement should be cash flow positive, otherwise you’ll be using income from your portfolio to pay for your properties,” Brown says.


When considering the benefits and risks of real estate, look at the kind of property you own, how much debt you have on it and how willing you are to be involved in its management. “For example, if you own a strip mall in good condition with a grocery store that has a 30-year lease and little debt, it may be a great income source,” Oehler says. “But if you own outdated apartment buildings that carry a lot of debt and short-term leases, they may be more of a headache than an asset.”


Don’t Wait Too Long

A big mistake some investors make is not planning for retirement early enough. “Planning for retirement should begin as soon as you start earning income. But assess your financial strategy five years prior to retirement to be sure you are on track and that your retirement goals are realistic,” Brown says.


You can work with your Wealth Management Advisor to identify your savings, current cash flow needs and future cash flow needs, then adjust your investments accordingly. “That way, you may be more confident in your later years that you have the resources to live the way you would like — and that other assets go to family members and philanthropic entities in the way you would like them to,” Whong says.


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Financial Planning