Don’t Put All of Your Eggs Into One Basket

By Larry Greenwalt, CPA, Chairman of the Board and Jim Wagoner, CPA, Partner, Director of Tax Services Group

A recent Gallop poll reported that fewer Americans think they can rely on their 401(k)’s for retirement. This isn’t surprising as many middle and upper income employees do not take full advantage of their 401(k) deferral opportunities. But unless they started at a very young age, their 401(k) and Social Security benefits will not allow them to retire worry free.

Some of these people are professionals and business owners who believe that their business ownership will become their future retirement nest egg. That approach could be a potentially serious mistake because there are so many things that could happen that would adversely impact the value of their business ownership interests; e.g. business financial problems, product/service obsolescence, inability to liquidate your ownership interest, bankruptcy, lawsuits, etc.

So what is the best strategy? Don’t put all of your eggs into one basket! Instead, consider implementing the following nine tactics to minimize your risks and enhance your retirement peace of mind!

1. Make sure you set aside, and add to, investments in marketable securities over time. While these should be viewed as long term funds, they do provide liquidity to meet an immediate need.
2. Maximize your contributions to your retirement accounts consistent with meeting your current cash flow needs. This also lowers your current income tax bite. Make sure you take maximum advantage of your employer’s matching funds on your contributions.
3. Don’t prematurely tap retirement funds and incur unnecessary penalties and taxes, except as a last resort.
4. If you own a business, make sure you have the appropriate Buy-Sell agreement in place and consider whether it should be funded with life insurance.
5. Periodically review with a financial professional how well your pre-tax and after-tax investments are diversified and how well they are performing.
6. Avoid using high cost, non-deductible debt such as credit card loans, consumer debt, etc. If need be use a home equity loan.
7. A good way to have more for retirement is to spend less. There are a whole lot of ways to accomplish this-but that is a discussion for another time!!
8. Unless you have serious health issues, defer drawing Social Security until you reach full Social Security retirement age-currently age 66. If you defer drawing social security past age 66, your monthly benefit increases by 8% per year for each year past age 66, up to age 70.
9. If possible, limit your withdrawals from your retirement accounts to the required minimum distribution (RMD), so that you have more funds earning on a tax deferred basis. Within reason, take the needed income or income and principal from your “after-tax” funds that you so wisely established in tactic #1 above!

Our goal is to “Deliver Peace of Mind” and we can’t think of any area where this is more important than dealing with retirement. Please contact us if you would like to discuss this or any other matters further. Larry Greenwalt CPA, 317-240-4489, lgreenwalt@greenwaltcpas.com, Jim Wagoner CPA, 317-260-4428, jwagoner@greenwaltcpas.com