Orchestrating your retirement accounts

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An orchestra is a merely a collection of instruments, each of which brings a unique sound. It is only when a conductor leads them that they create the beautiful music imagined by the composer.

The same can be said about your retirement strategy.

The typical retirement strategy is a built on the pillars of your 401(k) plan, your IRA, and taxable savings. Getting the instruments of your retirement to work in concert has the potential to go far in realizing the retirement you imagine.

Hierarchy of Savings

Maximizing the effectiveness of your retirement strategy begins with understanding the hierarchy of savings.

If you’re like most Americans, the amount you can save for retirement is not unlimited. Consequently, you may want to make sure that your savings are directed to the highest priority retirement funding options first. For many, that hierarchy begins with the 401(k), is followed by an IRA and, after that, taxable savings.

You will then want to consider how to invest each of these savings pools. One strategy is to simply mirror your desired asset allocation in all retirement accounts.

Another approach is to implement the income-generating portion of the allocation (e.g.,bonds) in the tax-deferred accounts, while investing in assets whose gains will be from capital appreciation (e.g., stocks) in the taxable accounts.

When it comes to living off your savings, you’ll want to coordinate your withdrawals. One

school of thought recommends that you tap your taxable account savings first so that your tax-deferred savings will be afforded more time for potential growth.

Withdrawal Strategy

Another school of thought suggests taking distributions first from your poorer performing retirement accounts since this money is not working as hard for you.

Finally, because many individuals have both Traditional and Roth accounts, your expectations about future tax rates may affect what account you withdraw from first. (If you think tax rates are going higher, then you might want to withdraw from the Traditional before the Roth). If you’re uncertain, you may want to consider withdrawing from the Traditional up to the lowest tax bracket, then withdrawing from the Roth after that.

In any case, each person’s circumstances are unique and any strategy ought to reflect your particular risk tolerance, time horizon, and goals.

Citizen Advisory Group can be your conductor. Call us at 419-872-0204 or visit our website http://www.citizenadvisory.com/ and we can help you achieve the retirement that you always dreamed of.