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If You Don’t Know Where You’re Going, You’ll Never Get There….

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BubbleWhenever I consult with my clients on their retirement plans, I ask what I believe to be the two most important questions:

1. How much income would you like during your retirement?

2.What do you see as the biggest threat to realizing that income?

Sadly, too few people today ask themselves these questions.  We automatically put money into pre-determined 401(k) plans or IRAs or invest in stocks and bonds because someone told us that was what we were supposed to do, but without truly establishing final goals or expectations. As leaders and managers in the work place, if we ever tried to implement a program without establishing goals and expectations, anticipating potential pitfalls, and  ensuring that our goals were met, we can pretty much expect to kiss that next promotion goodbye.

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Of all potential clients that I have met with in the last few months only one clearly stated that they would like to maintain their current salary during retirement.  No others had ever thought about asking that question. Yet how can you save towards a retirement goal when you do not know how to articulate what your goals are and what could possibly stand in the way of reaching those goals? How can you save for your retirement goals when you are not aware of the impact of taxes and inflation? How can you maximize your retirement income when you do not know how to use existing tax deductions from your 401(K) contribution to further your retirement goals?

Are we as planners doing a good job teaching our clients about retirement planning if savers cannot articulate what they are saving for? I posit to you that a critical function of a good retirement planner is the ability to educate his/her clients, and the public, on how to not just save and accumulate, but also to have tax awareness and to know how to effectively use the tax deductions derived from their contributions to a retirement plan.

Proper retirement planning is not only how much you can accumulate in savings but also being aware of taxes and how to mitigate them through a variety of options available.  When you can identify your tax deductions and understand how money not paid in taxes on earned income can be used to offset future taxes, you are effectively paying your taxes at a discount. This is how we attack the tax!

In other words, when you use your tax deduction to invest in your future, you give purpose to your tax deduction, which means you will use it towards a goal. All of a sudden, your retirement planning has gone from a monthly donation to a 401(k) plan without the knowledge of whether you would meet your retirement goals, to a thought out, goal-oriented strategy. You now attack the tax at the contribution point and the distribution stage and lay a foundation for higher income due to lower taxes.

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