Choose a planner that put his/her attention on tax planning

Remember my beliefs.  The first one is that retirement savings and planning depends on you, you, and you (as opposed to the government, your employer, and you).  The second one is that you’ve got to keep your eye on market volatility, inflation/deflation (even if only medical expenses inflation), and TAXES.  Taxes could potentially be your biggest expense in retirement.  If you’re not diversifying your investments to provide tax-free income in retirement, you’re missing out on an opportunity to save on that expense and therefore have more money to spend in retirement.

Here are the Cliff Notes (remember Cliff Notes?):

1. As investors accumulate retirement assets, they should put money in three buckets: one that’s tax-deferred, one that is tax-free, and one that is taxable for savings and investments outside tax-advantaged accounts.
    
2. Investors often can stretch their retirement dollars further if they have the flexibility to manage distributions in a tax-efficient way.  This is a process that must begin in the accumulation phase.
    
3. Directing money to tax-free accounts can be the most challenging and needs to start early.
    
4. In the example given, because the couple was able to draw money from a variety of sources, the couple had $120K in retirement income and was able to keep an effective 7.7% tax rate and also realized these potential benefits: they will qualify for lower Medicare Part B premiums, potentially qualify for the lower capital gains tax, and improve their ability to deduct health insurance and/or long-term care premiums.
    
5. If cash is king, flexibility is queen:  A tax-diversified retirement portfolio gives investors more flexibility to deal with unknowns like changing tax rates and the potential means testing for Social Security and Medicare benefits. 

See, I’m not the only one who says these things.

Since when did life insurance get so sexy?

The problem is that people often think of life insurance as another one of those things that you have to buy when you become a grown up, get married and have children.  It is yet another annual expense that seemingly has no value at all unless one dies.  Then to add insult to injury, the dead person doesn’t even get to use the death benefit proceeds.  It’s no wonder that people joke that life insurance is designed to keep you broke while you’re alive so you can die rich.

If this is your belief system, you might need to get your mind right.  In all honesty, there’s some truth to the above statement.  If you have young children, business partners, or dependents, you do need life insurance so that if you die, there are assets available to support them.  Or, if you stand to die with more than $1 million, then you might want the money to pay estate taxes.  In any event, you’re buying the policy for death benefit purposes.

But you can buy life insurance for life benefit purposes, and this is where people are missing the opportunity.  The article quoted a planner saying that “There are people who are making at least $250,000 a year and who will be targeted for higher taxes….  Cash value insurance is a Roth IRA for rich people, and they can tap that money judiciously.”  This is a true statement.  Cash value life insurance contracts are one place where you can grow money tax-free (well, tax-deferred if you want to get technical) and access it tax-free (if the contract is created and funded properly).  I spend my days showing people how to create tax-free retirement income, create buckets of money to meet education funding goals and disability income supplementation, and how to create “Roth IRAs on steroids” for employees who can’t put enough money away in their company’s retirement plans or business owners who have not adequately saved for retirement.  I show people how to keep their social security benefits from being taxed.  I show people how not to outlive their money.  Life insurance, believe it or not, can play a huge role in making that plan work.