By Mike Gibbons, RICP®
As a pharmaceutical professional, you’ve likely spent years dedicating yourself to a demanding career while diligently building your retirement savings. Whether through long hours in the lab, leadership roles, or careful financial planning, you’ve accumulated a substantial nest egg. Now, as you approach retirement, it’s crucial to shift focus from accumulation to preservation with a strategic plan designed to make your hard-earned wealth last.
Turning your savings into a steady income stream for retirement requires thoughtful planning, especially in an ever-changing financial landscape with evolving tax rules and regulations. To help you navigate this complex process, I’m highlighting common pitfalls and how to avoid them—so you can confidently enjoy the retirement you’ve worked so hard to create.
Tax Rules
Believe it or not, there are more tax rules to consider in retirement than there are when you’re working. And each decision you make affects more decisions—it’s like a domino effect.
An example: It’s important to have the right balance between tax-deferred accounts (like a 401(k) or IRA) and tax-free accounts (like a Roth IRA). If you don’t have a good balance and want to move things around, you could consider a Roth conversion, where you convert a portion from a tax-deferred account into a Roth IRA.
However (and here’s where that domino effect kicks in), if you do that, not only can it affect your income taxes for the current year, it could also impact how much you pay in Medicare payments, and how much tax you pay on your Social Security benefit.
There are a lot more moving parts to consider just like this one. One mistake or overlooked decision could result in an unexpected tax bill. But there’s hope. It is possible to actually lower or even wipe out taxes during retirement.
Portfolio Diversification
I’ve seen many retirees limit their portfolios to stable investments like bonds and CDs. My professional opinion is that it’s more important to maintain a balanced asset allocation during retirement.
Given the historically low returns of CD and bond investments, the unpredictability of inflation, combined with whatever distributions you’re already planning to take, you’re putting yourself at major risk of running out of money during retirement if you don’t diversify.
Withdrawal Order
There’s a specific order for withdrawing income from your retirement accounts without jeopardizing your future.
A smart way to do that is to carefully analyze your distribution plan if you have money in taxable, tax-deferred, and tax-free accounts. This helps you make wise tax decisions this year, and then apply that knowledge to your income strategy 10 years from now.
In other words, while taking money from one account right now might seem like a good idea, you should consider how that decision might play out in 10 years.
Longevity Risk
It’s time to think about what would happen if you outlived your retirement savings. The human lifespan is getting longer, and making your savings last throughout your lifetime is essential.
A professional retirement planner can help you, working with you to find a sustainable withdrawal rate, a smart investment strategy, and suggestions for when to withdraw Social Security. All these decisions can affect your odds of having enough money throughout your lifetime.
Social Security Decisions
While it might be tempting to withdraw your Social Security benefits as early as possible at age 62, the sooner you start, the lower your benefit amount. It’s important to consider the long-term effects of that lower amount, and how it could potentially impact your lifestyle during your 70s, 80s, and 90s.
Additionally, if you’re still working and receiving a paycheck and you withdraw Social Security benefits, there are significant tax ramifications to consider—and even more when you add a Roth conversion into the equation.
Choosing the Right Medicare Plan
Thinking about retiring before age 65? Remember that Medicare doesn’t kick in until 65, which means you’ll need health insurance to fill the gap until Medicare is available.
Also, you’ll have a new set of decisions to make once you’re eligible to sign up: you can sign up for the Original Medicare (parts A and B) or a Medicare Advantage plan.
If you choose Original Medicare, additional decisions include which Medicare Supplement plan you’ll need. Each option has a variety of variables, including price, coverage areas, co-pays, and deductibles.
Keep in mind that if you don’t enroll in the right time frame, Medicare actually penalizes you with higher premiums for the rest of your life. It gets even more challenging if you work past age 65 and get health insurance coverage from your employer.
Partner With an Experienced Advisor
As a pharmaceutical professional, you understand how rapidly the landscape can change—new regulations, evolving industry standards, and unexpected challenges are part of the job. The same is true for financial planning. With each new session of Congress, tax laws and retirement regulations can shift, making it difficult to stay on top of the latest changes. Staying informed is essential, but it’s also time-consuming.
You’ve worked hard for your retirement, and you deserve a well-crafted financial strategy that adapts to these changes. Let Gibbons Financial Group handle the complexities so you can focus on enjoying the retirement you’ve envisioned.
Contact us at 224-419-5550 or email me at Mike@gibbonsfinancialgroup.com to schedule a complimentary consultation. And be sure to join our free webinar, Retiring Early From Pharma.
About Mike
Michael J. Gibbons is founder and president of Gibbons Financial Group, an independent advisory firm providing custom-tailored financial planning and investment management services to pharmaceutical and healthcare professionals and their families. Mike has over 25 years of experience and spends a significant portion of his day working with pre-retirees and retirees, focusing on asset management, Social Security and pension planning, as well as retirement income preparation.
Mike has degrees in both business and psychology from Lake Forest College and currently holds his Retirement Income Certified Professional (RICP®) designation from the American College. Mike was named a Five Star Wealth Manager for 2016 and 2018* Mike is heavily involved in his community, having served on the Village of Gurnee Police Pension Board as a Community Volunteer and the St. Patrick’s Parish Financial Board. When he’s not working or volunteering, Mike loves playing golf and spending his time with his wife and children. To learn more about Mike and how he can help you, connect with him on LinkedIn, visit his website, and register for his free webinar, Retiring Early From Pharma, created specifically for professionals retiring from the pharmaceutical, biotechnology, and healthcare industries.
*Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2016/2018 Five Star Wealth Managers.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.