Comprehensive Financial Planning in Danvers, MA

Whether you're just beginning to think about retirement or already seeing it on the horizon, here are the top three strategies to better prepare for your 30 or more retirement years. 

1. Maximize Contributions to Retirement Accounts:

As you approach retirement, it is crucial to boost your savings to compensate for the shorter time horizon for investment growth.

Following are the 2025 retirement plan contribution limits by account type:

• 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan (TSP):
  • Standard Contribution Limit: $23,500
  • Catch-Up Contribution for ages 50-59 and 64+: An additional $7,500 for $31,000
  • Catch-Up Contribution for ages 60-63: An additional $11,250 for $34,750

• Individual Retirement Accounts (IRAs) - Traditional and Roth:
  • Standard Contribution Limit: $7,000
  • Catch-Up Contribution for age 50 and over: An additional $1,000 for $8,000

• SIMPLE IRA (self-employed, small business owners):
  • Standard Contribution Limit: $16,500
  • Catch-Up Contribution for age 50 and over (general): An additional $3,500, for a total of $20,000
  • Catch-Up Contribution for ages 60-63 under certain applicable plans: An additional $5,250, for a total of $21,750

• SEP-IRA and Solo 401(k):
  • Contribution Limit: Up to 25% of compensation or $70,000, whichever is less.

2. Reassess and Adjust Your Investment Portfolio:

As retirement nears, reducing investment risk should become more important to protect your nest egg from excessive market volatility.

This can include gradually shifting your assets towards a more conservative allocation. For example, reduce stock exposure and increase bonds, income-producing real estate, or other fixed-income securities to preserve capital while still allowing for some growth. 

3. Create a Withdrawal Strategy:

Understanding how to withdraw funds in retirement is as critical as saving them to ensure your money lasts throughout your retirement years. Develop a plan for drawing down your savings, considering tax implications and the sequence of withdrawals from different account types (like taxable accounts, traditional IRAs, or Roth IRAs). 

These strategies focus on ensuring you have enough saved investments aligned with your retirement risk tolerance and timeline and a plan for using your savings efficiently once you are retired. Personal circumstances can significantly influence these strategies, so consulting with a local financial advisor can provide tailored advice for your situation.

Here's a hypothetical example of a withdrawal strategy for someone retiring at age 65 with $500,000 in a Traditional IRA, $200,000 in a Roth IRA, $300,000 in a taxable brokerage account, and expecting Social Security payments of $30,000 per year per person (starting at age 67) along with a $20,000 annual pension. 

• The strategy begins with relying solely on Social Security and pension for the first two years to provide a stable income of $50,000 without touching your other retirement assets. 
• From year three, withdrawals from the taxable account start. Focusing on assets with lower capital gains tax implications or where losses can be offset, the goal is to withdraw around $10,000 annually to supplement income while staying in a lower tax bracket. 
• By years five to ten, the strategy shifts to Roth IRA withdrawals, utilizing tax-free income to manage expenses with an annual withdrawal rate of about $20,000, ensuring that your overall tax liabilities remain low. 
• As retirement progresses, particularly after age 73, when Required Minimum Distributions (RMDs) from Traditional IRAs begin, withdrawals from this account will be utilized, aiming to meet your RMD requirements while minimizing taxes. 

Annual reviews are crucial to adjust withdrawals based on health, inflation, market performance, and tax law changes, ensuring the portfolio lasts as long as you and your spouse do.

If you receive some form of executive compensation benefits from your employer, here are the top three ways to leverage your employee benefits for financial planning, especially when you're less than ten years away from retirement:

1. Leverage Deferred Compensation Plans:

• Deferred compensation plans allow you to defer a portion of your income until retirement, potentially reducing your taxable income now and allowing for tax-deferred growth simultaneously. This can be particularly advantageous if you expect a lower tax bracket during retirement.

2. Health Savings Account (HSA):

• With its triple tax advantage, contribute the maximum to your HSA if you have a high-deductible health plan. In 2025, the limit is $4,150 for individuals and $8,300 for families, with an extra $1,000 for those 55+. Use it for current medical expenses, but ideally, let it grow tax-free for your latter years. 
• After age 65, you can use the funds for any expense, though non-medical withdrawals are taxable, making it a versatile retirement fund, especially for healthcare costs.

3. Utilize Employee Stock Purchase Plans (ESPP) or Stock Options:

• Benefit from buying company stock at a discount through an ESPP or exercising stock options. If you're optimistic about your company's growth, this can be a lucrative way to invest. Consider selling shares post-holding to avoid high capital gains tax while reinvesting or using the proceeds to bolster retirement funds. Diversify to mitigate risk from holding too much company stock about other assets.

Estate planning is more than just a legal formality; it's about creating a legacy. Sherr Financial Associates (SFA) approaches estate planning with sophisticated solutions, leveraging tools like trusts and charitable giving to manage taxes and expand your legacy. Our strategies aim to minimize estate taxes, ensuring more wealth benefits your heirs than various government entities. 

Here are three important estate planning strategies to consider implementing today:

1. Update or Create a Will and Trusts:

• Will: Ensure you have a current will or update an existing one to reflect your current wishes. This document directs how your assets should be distributed and who will care for minor children or dependents.
• Trusts: Consider setting up or reviewing trusts, particularly:
  • Revocable Living Trust: This allows you to maintain control over your assets while alive but can facilitate a smoother, private estate transfer upon death, bypassing probate.

• Irrevocable Trusts are useful for asset protection, tax planning (for example, reducing estate taxes), or providing for beneficiaries in a structured manner. A Charitable Remainder Trust or Life Insurance Trust can be beneficial if you aim to support charities or manage estate taxes.

2. Beneficiary Designations and Asset Titling:

• Review and update beneficiaries on your retirement accounts (like IRAs, 401(k)s), life insurance policies, and annuities. These assets pass directly to named beneficiaries, often outside of the will, impacting how your estate is handled.
• Consider how your assets are titled. Joint tenancy with the right of survivorship or tenancy by the entirety can ensure assets pass directly to a surviving spouse or partner without going through probate. However, be aware of the implications for estate taxes and asset control.

3. Advanced Healthcare Directives and Powers of Attorney:

• Healthcare Proxy/Living Will: These documents ensure your medical wishes are followed if you become incapacitated. A healthcare proxy appoints someone to make decisions for you, and a living will outlines your preferences for life-sustaining treatment.
• Financial Power of Attorney: Designate someone to manage your financial affairs if you cannot. This can include paying bills, managing investments, or handling real estate transactions. Whenever possible, it's crucial to avoid court-appointed guardianship in case of incapacity.

In a world where the unexpected can impact your financial security, Sherr Financial Associates (SFA) offers proactive risk management strategies. Our solutions for HNWIs include a blend of insurance and investment strategies designed to mitigate various risks more effectively. Whether safeguarding your family's future or ensuring your business thrives, our holistic approach identifies potential threats and crafts personalized solutions. At SFA, we believe in a comprehensive shield for your financial well-being.

1. Diversification: 

This involves spreading your investments across different asset classes (like stocks, bonds, real estate, and cash equivalents) to reduce the impact of volatility in any one investment, industry, or geography. Consider shifting towards more conservative investments like bonds or bond funds, which generally offer lower risk and more stable returns than stocks, although with potentially less growth. Another aspect of diversification is geographical and sector-specific. You should avoid over-concentration in one market or industry. 

2. Insurance Strategies: 

• Insurance strategies also play a critical role in risk mitigation. Long-term care insurance is vital, especially as healthcare costs can be a significant retirement expense. Purchasing this insurance in your late 50s or early 60s can lock in lower premiums while ensuring coverage for potential long-term care needs, which Medicare does not fully cover. 
• Another insurance strategy involves annuities, particularly fixed-income annuities, which can provide a guaranteed income stream for life or a set period, offering protection against outliving your savings. 
• Lastly, consider umbrella insurance to cover liabilities beyond what your standard home or auto insurance offers, thereby protecting your assets from lawsuits or large claims.

No one wants to pay more taxes than is legally required, so having a comprehensive tax plan is very important as you near retirement. At SFA, our personalized tax strategies focus on reducing your tax burden through income and estate tax minimizations.

Following are a few tax planning strategies you can deploy as you near retirement:

1. Roth IRA Conversions:

• Convert pre-tax dollars from traditional IRAs or 401(k)s into a Roth IRA. You'll pay taxes on the conversion amount now, but this could be advantageous if you expect tax rates to rise or anticipate being in a higher tax bracket post-retirement. Roth IRAs do not have Required Minimum Distributions (RMDs) during the owner's lifetime, offering tax-free growth and withdrawals, which can benefit tax planning and estate planning.
• Timing: Consider doing this in years when your income might be lower so you may convert at a potentially lower tax rate.

2. Tax-Loss Harvesting:

• Sell investments with unrealized losses in your taxable accounts to offset capital gains elsewhere in your portfolio. If your losses exceed your gains, you can use up to $3,000 of that loss to offset ordinary income each year, with excess losses carried forward to future tax years. This can reduce your taxable income, particularly useful if you're planning to downsize your investment portfolio or rebalance it as you retire.
• Be aware of the wash-sale rule, which disallows the tax benefit if you repurchase the same or "substantially identical" security within 30 days before or after the sale.

As you navigate the complexities of financial planning, particularly nearing retirement, partnering with Sherr Financial Associates (SFA) can make all the difference. 

Our knowledge in estate, tax, and investment strategies seeks to ensure that your financial future is secure, optimized, and tailored to your life goals. 

When you partner with SFA, you're not just planning but building a legacy. Don't leave your financial well-being to chance; trust Sherr Financial Associates to guide you through every step with precision and care. Schedule a consultation today and take control of your financial future.