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Reduce Your Taxes in Retirement Using The 321 Plan

Season #2

This week we continue our deep dive in to the 321 Retirement Plan. The 321 Retirement Plan is an integrated approach to retirement planning designed to amplify income, minimize taxes, and safeguard life savings against market volatility and inflation. This approach seeks to navigate the unpredictable twists and turns of life that often threaten to disrupt our retirement plans.

A Decision Making Process

The 321 Retirement Plan is essentially a decision-making process for the multitude of choices we face in retirement. The objective is to make these decisions beneficial for the investor, rather than for the market, the IRS, or Congress. The ultimate goal is to ensure retirees can lead a fulfilling life without being constantly at the mercy of the market's whims.

One critical aspect is knowing when to start drawing on Social Security or a pension, and which retirement accounts to draw down first. The crux of the issue is having a method to evaluate these decisions. This involves facing numerous questions, some of which we might not even be aware of initially, and making choices that best serve us, our loved ones, and our retirement plans.

The 5 Major Risks To Investor's In Retirement

There are five significant risks in retirement, the greatest of which is anything that depreciates our portfolio's value. The 321 Retirement Plan aims to maximize portfolio value and minimize factors that could reduce it. One significant threat to portfolio value is the stock market, so having a plan to address this is essential. Similarly, taxes are another factor that can substantially reduce the value of a retirement portfolio if not properly managed.

Tax Planning: A penny saved is a penny earned

Another critical aspect of the 321 Retirement Plan is tax planning. The old adage "A penny saved is a penny earned" is particularly relevant when it comes to retirement and taxes. There's a rule known as required minimum distributions, or RMDs for short. Simply stated, RMDs are a mechanism Congress uses to drain retirement accounts at a pace of their choosing. If not managed effectively, this could land retirees in the highest tax bracket, resulting in more money going to Congress than towards their own retirement.

Addressing this issue involves ensuring the money spent in retirement is tax efficient. This includes deciding which accounts to draw down first, in a way that provides the most substantial tax benefit. The aim is to stretch retirement dollars as far as possible.

The Past, Future and Present

Having a comprehensive plan is vital for success. This involves mapping out current and future taxes and income, identifying where the income will be drawn from, and outlining potential life events that could necessitate a reevaluation of the plan. For instance, the impending expiry of the Tax Cut and Jobs Act in 2026 is a significant event to monitor.

It's advisable to reassess the retirement plan at least once a year, ideally around November or December, once the current year's taxes are known. This allows for adjustments based on current tax brackets and any distributions that need to be taken.

A 321 Plan Can Protect Against Market Volatility

Properly implemented, the 321 Retirement Plan can insulate investors from most market fluctuations, eliminating the need for constant market monitoring, which often leads to anxiety. The plan should be built for current market conditions, with built-in flexibility to adjust as those conditions change.

Preemptive action is the cornerstone of this approach. If, for instance, we know Congress is considering changing the tax code or that the Tax Cut and Jobs Act will expire in a few years, it's better to take advantage now rather than react after the fact.

A comprehensive retirement plan is not a static document but a living, breathing plan designed to adapt to all market conditions and provide a secure path through retirement. The 321 Retirement Plan encompasses this adaptive, preemptive approach, reducing the likelihood of being caught by surprise.

To learn more about the 321 retirement plan, and how it can help you, click here.