Two Key Retirement Strategies for San Antonio Residents in Their 50s

As you contemplate retirement in your 50s, a few key strategies should be included in your comprehensive retirement planning process.  This blog outlines two important aspects of retirement that successful San Antonians should be incorporating into their retirement planning strategies: 

  • The Importance of Tax Planning in Your 50s
  • Planning for the Unexpected

We will also delve into why it is important to use the services of a CERTIFIED FINANCIAL PLANNER™ (CFP®) in San Antonio.

Planning for your retirement in San Antonio? Be sure to read our Quick Guide: Retirement Planning in San Antonio. 

The Importance of Tax Planning in Your 50s

Comprehensive tax planning could be crucial to your retirement plan, especially in your 50s and getting closer to retirement. At PAX Financial Group, a San Antonio-based firm of financial fiduciaries, this is something that we include as a pillar of our retirement planning process.  

Retiring in San Antonio comes with its own unique set of opportunities and risks. For instance, Texas does not have a state income tax, which can be a factor in your retirement planning. A San Antonio CFP® can provide expertise and insight into local and federal tax laws that may impact you.

As a successful high-income earner, understanding your pre- and post-retirement tax brackets is vital in projecting future cash flows and choosing tax-efficient investment strategies based on your current and projected circumstances, capacity and tolerance for risk, and financial goals. 

For example, moving into a higher tax bracket in your early retirement years is counter-intuitive but possible if one of the following conditions occurs. 

Suppose you’ve saved substantial assets in tax-deferred retirement accounts like a traditional 401(k) or IRA and start taking large initial withdrawals. In that case, those amounts are taxed as regular income. If your withdrawals (along with other sources of income) are higher than your income while working, you could be moved into a higher tax bracket.

If you sell substantial, highly appreciated assets like stocks or real estate after you retire, the resulting capital gains could also push you into a higher tax bracket. While long-term capital gains are usually taxed at lower rates than ordinary income, they can still increase your overall tax bill.

Suppose you receive a substantial amount of pension assets or annuity. In that case, the income from those sources is typically taxed as ordinary income, which could also push you into a higher tax bracket when combined with other income sources.

Also, your Social Security benefits may be taxable depending on your other income. While it’s unlikely to push you into a higher tax bracket, it could impact taxes on other income sources.

A substantial inheritance or another type of financial windfall during your early retirement years could also push you into a higher tax bracket, depending on the type of assets and amount of inheritance.

PAX Tip: Remember, tax laws can be complex, and they change over time, so it’s important to consult with a tax planning professional or financial advisor for personal advice based on your unique situation. As San Antonio fiduciary advisors, we help you maximize your post-tax retirement income while considering your long-term retirement planning goals

Planning for the Unexpected in Retirement

A comprehensive retirement plan should always consider various non-controllable events that can impact the financial well-being of you and your spouse. It’s important to have strategies to help you deal with unexpected events like inflation, illness, premature death, rising healthcare costs, and significant life events. 

Here are some points to ponder:

Historically, the average annual inflation rate has been around 2-3% however, in 2021, the inflation rate jumped to 7%. It is now hovering around 4%, but it’s still double what it typically is. Persistent inflation erodes the purchasing power of your assets – remember what a gallon of milk or a dozen eggs used to cost.

Everything becomes more expensive as the purchasing power of your assets declines in value.  There are various ways to manage inflation risk. For example, consider investments that historically have provided returns that outpace inflation: Income-producing real estate, Treasury Inflation-Protected Securities (TIPS), precious metals, and high-interest savings accounts. 

Unexpected or catastrophic healthcare expenses can also be a significant risk for your retirement assets because these expenses can rise faster than the general inflation rate. To manage this risk, consider investing in a Health Savings Account (HSA) if eligible or purchasing long-term care insurance. 

PAX Insights: It’s important to factor in the potential for increased healthcare costs later in life. For example, you or your spouse may require Assisted Living, Skilled Nursing, or Memory Care as you age.

People also live longer, increasing the risk of outliving their assets. This takes even more planning to minimize the risk of outliving their retirement savings. To manage this risk, consider various strategies such as delaying Social Security benefits to increase the payout, purchasing annuities that provide a lifetime income, or maintaining a portion of your portfolio in growth-oriented investments even after retirement.

The risk of serious investment losses due to market fluctuations can also be a concern, especially in early retirement. To manage this risk, consider strategies like maintaining a diversified portfolio and having a cash or short-term buffer that might be viewed as a buying reserve to take advantage of lower stock prices.

You should also consider factoring in major life events into your retirement plan. These could include the premature death of a spouse, a significant illness, or a need to provide financial assistance to your children or parents financially. To manage these risks, consider life insurance, long-term care insurance, and maintaining an emergency fund. Also, be cautious about offering financial assistance to others without considering the potential impact on your financial security later in life.

Changes in tax laws or Social Security benefits may impact your retirement plans. To manage this risk, consider diversifying the tax consequences of your investments (e.g., Roth vs. traditional IRA) and staying informed about potential legislative changes in the tax code.

How you withdraw assets from various accounts can also impact your tax consequences. You should always draw down amounts from taxable accounts first. Let investments in tax-deferred accounts continue growing as long as possible.

Diversification should also be your primary strategy for managing investment risk. It is the equivalent of putting your eggs in multiple baskets versus one basket. This strategy has the potential to reduce your risk of large losses. 

PAX Tip: Remember, even the best retirement plan should be reviewed and updated periodically based on changes in your life, the economy, the securities markets, and various laws that impact you.  Our team of experienced San Antonio-based financial advisors can help you evaluate these risks and create a plan tailored to your need for returns consistent with your risk tolerance.

Choosing the right financial advisor in your 50s to help you craft a comprehensive retirement plan can be a game-changer. At a minimum, you will be better prepared for what comes next. A professional who is a financial fiduciary, required by law to put your interests first, is your best choice for an advisor you can trust.

As you approach retirement, you want a CFP® who can address all areas of your financial life and integrate them into a cohesive plan for your retirement years. Talk with the PAX Financial team about your retirement plans and goals.

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This material is provided by PAX Financial Group, LLC. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. The information herein has been derived from sources believed to be accurate. Please note: Biblically Responsible Investing (“BRI”) involves, among other things, screening for companies that fit within the goal of investing in companies aligned with biblical values. Such screens may serve to reduce the pool of high performing companies considered for investment. Investing involves risk. BRI investing does not guarantee a favorable investment outcome. PAX Financial Group has conducted due diligence for their Biblically Responsible Investing (BRI) process and proudly serves as each client’s advocate using fully vetted third-party specialists for the administration of BRI methodology. Past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. This information should not be construed as investment, tax, or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product and should not be relied upon as such.

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