
Guide to Comprehensive Retirement Planning in Denver
Your financial journey has three phases: the accumulation phase, the preservation phase, and the distribution phase, which this blog will discuss in more detail.
Regardless of your stage in life, having a retirement plan is critical to your financial well-being, especially if you plan to retire for 30 years or longer.
Think of it this way: having a retirement plan is like having a well-prepared travel itinerary for an extended trip to a new destination. Just like an itinerary helps ensure you make the most of your time, avoid unnecessary detours, and stay on budget while traveling, a retirement plan provides structure, helps avoid financial pitfalls, and ensures your resources last throughout your retirement years (for both spouses, if applicable).
Both a retirement plan and an itinerary require careful planning and flexibility to adjust to the unexpected on an as-needed basis. They also help you reach your desired destination with confidence and on time.
At Breakwater Capital Group, we specialize in providing retirement planning in Denver and throughout the US to successful individuals with $500K or more of investable assets.
Whether you’re still accumulating wealth or nearing the retirement finish line, understanding the three phases of retirement planning—accumulation, preservation, and distribution—is crucial.
The Accumulation Phase: Building Your Wealth
As Benjamin Franklin once said, “Failing to plan is planning to fail.” The accumulation phase is where your retirement planning begins. During this stage, your goal is to grow your wealth through savings, investments, and strategic financial decisions.
While many people understand the importance of saving for retirement, the tactics you employ during this phase can significantly impact how much you have when you’re ready to retire. Here are two tactics to consider to boost your retirement savings efforts in the accumulation stage:
1. Maximize Tax-Advantaged Accounts
One of the most effective ways to build your retirement savings is by maximizing assets in tax-advantaged accounts like 401(k)s and traditional IRAs. These accounts allow your investments to grow tax-deferred, meaning you won’t pay taxes on your earnings until you withdraw funds during retirement. If your company offers a matching contribution to your 401(k), take full advantage of it—it’s essentially free money that can dramatically boost your retirement savings amount.
For 2024, the contribution limits for 401(k), IRA, and Roth IRA accounts have been updated as follows:
- 401(k) Contribution Limit: Employee contributions to a 401(k) plan are $23,000 for 2024, up from $22,500 in 2023. If you are 50 or older, you can contribute an additional $7,500 as a catch-up contribution, making the total contribution limit $30,500.
- IRA Contribution Limit: The contribution limit for traditional IRAs is $7,000 in 2024, up from $6,500 in 2023. Individuals age 50 or older can make a catch-up contribution of $1,000, bringing their total contribution limit to $8,000.
If you are self-employed or a business owner, consider exploring a SEP IRA. For 2024, the SEP IRA contribution limit is up to 25% of your compensation or $69,000, whichever is less.
This limit is significantly higher than traditional and Roth IRA contribution limits because SEP IRAs are designed primarily for small business owners and self-employed individuals who may be able to contribute larger amounts.
Unlike traditional IRAs, SEP IRAs allow employers to make contributions on behalf of their employees, and self-employed individuals can contribute as both the employer and the employee. However, there are no catch-up contributions for SEP IRAs, so the contribution limit remains the same if you’re 50 or older.
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2. Diversify Your Investments
Diversification is essential in the accumulation phase. Instead of putting all your money into one type of investment, spread it across a mix of asset classes, such as stocks, bonds, real estate, and alternative investments. This approach helps manage risk and provides you with more stability, especially during periods of market volatility.
Working with a Denver fee-only financial advisor to build a diversified portfolio can help balance your need for growth and reduced risk, ensuring you’re on track to meet your retirement goals.
The Preservation Phase: Protecting What You’ve Built
As you approach retirement, you should focus on safeguarding your investments against market fluctuations and other risks that could diminish your retirement savings. This phase typically begins three to five years before your planned retirement date and lasts three to five years after you retire. In other words, your tolerance for risk and ability to recover from significant losses is lower the closer you are to retirement.
1. Reduce Your Market Risk with a Balanced Portfolio
Reducing exposure to high-risk assets is wise and creating a more balanced portfolio that includes bonds, dividend-paying blue chip stocks, or other income-generating investments.
Creating a balanced portfolio tailored to your risk tolerance and retirement timeline is critical. Colorado wealth management professionals like Breakwater Capital Group can help ensure your investments are aligned with your goals and that you are less vulnerable to market downturns as you approach retirement.
2. Create a Tax-Efficient Withdrawal Strategy
Taxes can erode your savings if not managed properly, especially when withdrawing from tax-deferred accounts. Work with a Denver financial planning CFP® to create a tax-efficient withdrawal strategy to avoid unnecessary tax payments. This could include drawing from taxable accounts first while letting tax-deferred accounts like IRAs grow until distributions are required.
Another strategy to consider is Roth conversions, where you gradually convert your traditional IRA or 401(k) funds into a Roth IRA. While you’ll pay taxes on the conversion, the funds will grow tax-free, and future withdrawals will be tax-free. This tactic can be particularly advantageous if you’re in a lower tax bracket during your early retirement years.
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The Distribution Phase: Living Off Your Savings
Once you retire, you’re in the distribution phase, where the goal shifts to creating sustainable income from your retirement savings. How you withdraw your funds and manage your spending will determine the quality of your retirement years and how long your savings will last.
1. Set Up Guaranteed Income Sources
Establishing guaranteed income streams is one way to ensure a steady income throughout your retirement. Social Security is the most common source, but it’s rarely enough to cover all your expenses. Supplementing it with other guaranteed income sources, such as passive income from other investments, pension plans, dividends, interest, and other investment income, can provide additional financial security later in life.
A fee-only financial planner in Denver with a focus on tax planning can help you determine if this option fits your retirement strategy.
2. Develop a Sustainable Spending Plan
A critical component of the distribution phase is having a sustainable spending plan. Determining how much you can safely withdraw each year without running out of money is essential. Many advisors suggest following the 4% rule, which recommends withdrawing 4% of your portfolio’s value each year in retirement. However, this rule should be adjusted based on your circumstances, investment returns, and the impact of inflation.
A Denver financial advisor can work with you to create a dynamic withdrawal plan that adjusts for market performance, rising costs, and unexpected expenses. This way, you’ll have a clearer understanding of managing your finances while enjoying your retirement lifestyle.
Why Breakwater Capital Group?
No matter which phase of retirement planning you’re in, it’s never too early or too late to enhance your financial plan and investment strategy. Whether you’re looking for a fee-only financial planner in Denver or guidance in your retirement planning, Breakwater Capital Group is here to help.
Contact us today to discuss your retirement goals and how we can help you achieve them through personalized financial planning.
The views expressed represent the opinions of Breakwater Capital Group as of the date noted and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed.Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website at www.adviserinfo.sec.gov. Past performance is not a guarantee of future results.