Tax changes impact your retirement

  • If you are already maxing out your 401(k) contributions, then some experts will possibly recommend that you consider using what is commonly known as the Super Roth strategy.

    If you are already maxing out your 401(k) contributions, then some experts will possibly recommend that you consider using what is commonly known as the Super Roth strategy.

  • Dean Hedeker

    Dean Hedeker

  • Jim Platania

    Jim Platania


Once the kids are older and retirement may be drawing near, there are numerous financial aspects to consider.

Health care, tax rates, 401(k) contributions and various savings plans must be looked at and analyzed. There are many questions out there as well, such as, "Should I still be investing in the stock market?"

Another thing that plays into the equation is the fact that, on average, we are living longer. According to the Social Security Administration, more than one in three 65-year-olds will live to 90.

We asked several suburban wealth management experts and certified financial planners about what we should be looking at once we hit 50. After all, our financial portfolio is quite a bit different from perhaps just five or 10 years ago.

Here's what the experts have to say:

Jim Platania, certified financial planner, founder of Platania Financial Inc., Arlington Heights

• Start planning for what you believe your housing needs will be during retirement. You may wish to live in the same home for many more years, or you may want to consider downsizing for some of the following reasons: high property taxes (and how the new tax law will impact the income tax deductibility of those payments), a need to simplify and move to an area where home maintenance is taken care of (condo, townhouse or retirement communities), or you may just be looking for a more affordable place to live.

Moving always has been one of the biggest financial decisions you can make, so think it through and understand how it will affect you financially.

• Make sure you know how many more working years are needed for you to retire comfortably. Your retirement age may be sooner or later than one may expect, but you need to understand where you stand.

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• Determine the rate of return you need to earn on your money to be successful in reaching your goals. Far too often, people want to invest but don't take the time to determine the range of investment returns needed to help them achieve their financial and retirement goals.

High-net-worth individuals, who are unlikely to run out of money in retirement should question why they may have an aggressive equity portfolio that could cause more harm than good if the markets turn south.

Conversely, those who need to grow their assets significantly may question why they are invested in a very conservative portfolio when they will likely have a difficult time accumulating the funds they will need for retirement. This often causes those individuals to work longer or live more frugally during retirement.

• If you are married and currently have wills or trusts that separate your estate into two trusts to avoid estate taxes, you may want to have your documents reviewed by an estate planning attorney. With the new tax laws going into effect this year, estate tax limits have been increased dramatically and these trusts may no longer make sense for you.


Dean Hedeker, founder of Hedeker Wealth, Lincolnshire

In the past, because it was believed that, you would be in a lower tax bracket at retirement, the goal was to postpone paying taxes. So that meant fully contributing to your company 401(k) plan, fully funding your deductible IRA, etc.

With today's low tax rates and government deficits and the potential bankruptcy of Social Security, it is possible or even probable tax rates during your retirement will be higher than they are today.

This causes a shift in tactics; no longer is the game to postpone taxes as postponing will cause you to pay higher taxes down the road.

This does not mean you should stop saving for retirement; it just means a shift in tactics.

Those facing retirement within about 20 years will want to stop fully funding their company retirement accounts, but instead contributing just to the point where the employer match stops. Also new places for funds need to be considered such as Roth IRAs, nondeductible IRAs, taxable investment accounts and life insurance policies. Obviously, you can't stop contributing to Social Security, but you can cut back on your 401(k) contributions.


We suggest contributions only to the employer match level. We all need to assume tax rates will increase in the future, so now is a good time to diversify your retirement funds.

• Think about both your retirement age and your future health. It's difficult to know whether to collect Social Security at 65 or to wait until age 70. The break-even point is about age 80 to 82; those who live longer than that are better off waiting until age 70 to collect Social Security. None of us has a crystal ball, but if your health is good, waiting until 70 may be the safest bet at least.

• Invest in the stock market if you're under 65. Use stocks as a long-term investment and do not worry about the normal and regular fluctuations. This is still a reliable long-term strategy that will yield the best long-term results.

• If you're thinking about a vacation home -- think about some additional questions. Determine whether you're looking for a true vacation home or a rental property. If a vacation house is to be your home away from home, you will incur additional costs to repair, enhance and beautify the home and property for your enjoyment. Consider those costs on your investment.

If your plan is to rent the property, then decisions such as specific location, or proximity to the beach, town or parks will be considered differently and you may not need to invest as much in the property. Also note, if you rent out a second home less than 14 days a year, you do not have to pay income tax on that income, so if there is an annual film festival or you'd like to rent the home for Christmas week, you can do so for tax-free additional income.

• Simplify your calculations with the Rule of 72. It's difficult to do long-term planning quickly, especially with so many numbers floating around. One key number is 72. Calculating precisely when your investment will double is complicated, but if you use the Rule of 72, you can do quick math and help your investment planning.

Take the number 72 and divide it by the interest rate. An interest rate of, for example, 7 percent will result in a doubling money in about 10 years; the funds will quadruple in 20 years or so. A 10 percent interest rate will double your money in about 7 years and quadrupling will occur after about 14 years. This "back of the envelope" calculation can help you to start thinking more specifically about your financial choices for the long-term.

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