Eliminating the 3 Biggest Retirement Risks Part II

Learn the Facts with Impact Wealth

In our last article (Part l, May 2021), we discussed the three most significant risks to your retirement plan.  

Investment Risk

  • If you have been in the stock market, you have lived through this risk! Avoiding large losses is key. 

  • Think about it, if you are down 50% at any given time, you will have to make 100% just to get back to break even.

Tax Risk

  • Can you predict your retirement tax rate? How much will the government take? 30%? 50%? More? This gets even more complicated when you consider that your retirement can stretch 25 years and longer.

  • Given current tax proposals, tax rates are not likely to go down for most people.

Capital Risk

  • Simply put, not having enough money to fund your retirement goals.

  • According to one of the largest 401(k) providers in the country, 74% of your income in retirement is driven by how much you invest and only 26% is a result of your investment returns.

Part I, we focused mostly on Capital Risk.

In part II, we will primarily cover Tax Risk. Taxes are challenging because they are a moving target. It is easier to assess the risk on a particular investment strategy or by saving more for retirement, but how do you plan for taxes when tax rates change over time? 

Here’s an example. 

For every $100,000 per year of after-tax income desired in retirement:

  • If we use a 27% effective tax rate as a baseline, you will need about $137,000 in taxable income to net $100,000 after taxes. Assuming you are in retirement from age 65 to 90, that would total $3,425,000 needed for retirement income, not even adjusting for inflation.

  • What if your effective tax rate increased to 35%? It may not sound like much, but that is almost a 30% increase in taxes and will require $154,000 of taxable income to net the same $100,000 after tax. Another $17,000 per year or $425,000 over your 25-year retirement. 

What can you do about it? We suggest strategies to ensure a portion of your retirement income will come from TAX-FREE and tax-favored sources, in addition to the usual tax-deferred sources. With a little planning, a balanced approach around maximizing tax-free growth and minimizing losses can go a long way in reducing stress over future tax rates.

Overall, combining solid investment returns with tax efficiency will likely get you further compared to just saving more and taking on greater risk for higher returns. The sooner you start working towards a tax-free future, the closer you are to enjoying the benefits.

In Part III, we will focus on Investment Risk and how best to address it. To learn more, or for a white paper on the topic, please contact us at 303.645.4800 or

Your Impact Wealth Team

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