Centara Connection

The Power of Two: Having a CFPŽ & CPA Working Together Makes the Difference

Alan Clopine, CPA, Director of Tax Consulting & Joe Anderson, CFP®, Senior Relationship Manager

Can you afford to retire and still maintain the lifestyle you desire? What is your distribution strategy and is it tax efficient? If you are like most people, you don’t have the answers. This is primarily because we have been conditioned to save and are focused on accumulating assets. However, for millions of Americans the game is changing. As they head toward the distribution phase of retirement, people begin to spend money instead of saving it. This requires a new, more sophisticated level of planning.

Retirement planning is more challenging today than ever and will only become more difficult in the future. In order to tackle the uncertainties that accompany retirement, you need a comprehensive strategy that provides a sufficient cash flow to cover both the expected and the unexpected. By combining the expertise of a Certified Public Accountant (CPA) and a Certified Financial Planner™ Professional (CFP®) to create a broad view investment and distribution strategy, you significantly increase your chance of successfully transitioning into retirement.

As you approach retirement, your investments goals shift to sustainability. While investment risk is a constant concern for investors, other variables unique to the retirement years add to the uncertainty of the distribution phase. Assumptions about time horizon, taxes, investment returns, withdrawal rates, and inflation must be made, which can have significant ramifications if oversimplified or underestimated.

Time horizon is critical when planning. There is a 50.3% chance that one spouse aged 65 years old will live another 25 years. With each passing decade, medical advances greatly extend life expectancy rates. The risk of living longer than expected must be recognized, managed and incorporated into all retirement income planning.

As people live longer, the need to cut costs increases. For most, the biggest expense they face is their payment to Uncle Sam. Tax planning is now essential to retirement planning. While taxes are the biggest expense over a lifetime, most CPAs take a “rearview mirror” approach, in that they only look at the prior year to find ways to decrease taxes. Rarely are they proactively anticipating future tax issues which could cost you thousands.

An integral part of tax planning for the distribution phase is deciding which accounts and asset classes to liquidate first. There are many options, including qualified and non-qualified accounts, annuities, business interests, trusts, stocks and bonds. From a tax point of view, there are three pools of money to draw from and each is taxed differently. Pension plans, 401(K) plans, and IRAs are taxed at ordinary income, up to 35%, trusts and personal assets are taxed at the capital gains rate of up to 15%, and Roth IRAs, Municipal Bonds, and some life insurance are tax free.

It is nearly impossible to attempt sophisticated distribution planning alone. Consulting a professional who truly understands the tax implications is the only way to ensure that all considerations are made before beginning this phase of retirement. Determining a distribution strategy that will be flexible enough to manipulate your tax bracket needs to be a priority for anyone approaching retirement. By combining the expertise of a CPA & CFP® to create a cohesive investment and distribution strategy, you dramatically increase the likelihood of successfully maintaining your lifestyle throughout retirement.

Centara Capital Management Group, Inc.
8880 Rio San Diego Drive, 4th Floor
San Diego, CA 92108
(619) 398-1700
www.centaracapital.com
info@centaracapital.com

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