P&G Retirement Services - Frequently Asked Retirement Questions
The Years before Retirement
The decision of "if" and "when" to retire can be the most difficult decisions you will make in your lifetime. They involve both financial and emotional considerations.
“Do I have enough investment assets to retire?”
“How much money can I comfortably withdrawal?”
These are the types of questions we can help you answer. Developing a comprehensive wealth management plan and reviewing your financial and personal goals is the first step in this journey. Our process is designed to take the guesswork out of retirement and present the options available to you and your family. Some of the most common questions we hear, and the answers, are detailed below for your convenience.
Please click on the questions for the answers.
It is important when seeing advice that it is given based on your particular situation and provided by an advisor with a fiduciary standard. RiverPoint sits on the same side of the table as our clients and provides advice and solutions that are in your best interest. Doing what is in the best interest of our clients is the bedrock foundation of our firm. It is also a standard required by the SEC as a Registered Investment Advisor. The fiduciary standard that we are held to ensures we will act in our clients’ best interest.
I have decided to retire. What now?
If you have decided to retire, congratulations! However, it is very important to develop a plan if you don't already have one. The decisions made over the next few months and years will have a impact on your retirement.
Of all the decisions that a P&G retiree faces, this one may be the most important. Each individual’s situation is different and the correct answer for you and your family depends on many variables such as:
Current Age: This is a critical component of the decision-making process. If an employee retires in a year in which they are 54 or younger (because package has been offered), options may differ from those who retire at age 55 or older. We strongly encourage meeting with a RiverPoint Portfolio Manager to discuss all of your options.
Income needs: If an early retirement is on the horizon, you need to carefully consider income sources in years leading up to age 59.5 and beyond. At RiverPoint, we can customize investment strategies for those who prefer to live off of the income that their investments generate and plan to never touch the principal, or structure a strategy where clients can live off of both income and capital appreciation. At RiverPoint, income and cash flow planning is a critical component of our planning process. This is where a customized approach is a benefit.
The P&G Profit Sharing and Savings Plan is a unique profit sharing plan. Careful consideration should be paid to any company stock inside your P&G Profit Sharing Plan.
What usually does not receive a lot of attention by financial advisors is the benefit of tax attribute diversification after a properly executed QLSD. As we have seen, the tax code can change in any given year, and what may make sense this year, may change in future years. As much as we would love to be able to predict the future, the best strategy is to create a retirement plan that can adapt to changing tax and estate laws. Over-funded IRAs can force you to take a higher withdrawal than you need at age 70.5 and force you into a higher marginal tax rate.
The IRA is also a less flexible asset for making charitable gifts during your lifetime and is also less flexible for gifting assets to the next generation or retitling assets into the name of your partner or spouse. By creating another “tax attribute” through a QLSD, the proceeds from your non-IRA shares are held outside of your retirement account. These shares can be used before age 59.5, are not subject to minimum required distributions and can be advantageous for charitable giving due to their low cost basis. Also, any further appreciation in the stock price, post distribution, is allowed to be “stepped-up” to your beneficiary at your death under current tax and estate law. Whatever happens legislatively (and at this point, it is anyone’s guess), tax attribute diversification gives you another asset bucket to pull from depending on the current tax landscape.
It is important to note that if you retire in a year that you are 54 or younger, you can still take advantage of NUA, but there are complications. A common misconception is that the retiree who retires before age 55 can become eligible for a penalty-free distribution from the PST & Savings Plan after attaining age 55. We urge any P&G retiree who is age 54 or younger in the year they retire to schedule a meeting with a Riverpoint Portfolio Manager to discuss options available before making a distribution decision.
A 72(t) strategy allows one to make penalty-free withdrawals out of an IRA or a Qualified Retirement Plan before reaching age 59.5. While it sounds great in theory, a 72(t) plan can have unforeseen consequences including disqualifying a participant for NUA eligibility. The distributions must stay in effect for five years, which can wreak havoc on tax planning, especially if stock option proceeds are realized in years where 72(t) income is also realized. It can also have an impact on the sustainability of your IRA assets. In our experience, there may be better planning strategies for the early retiree than opting for a 72(t). Again, we recommend meeting with a financial professional before you decide a 72(t) is your best option.
Generating Tax Efficient Income from your Assets in Retirement
In its simplest form, your investment portfolio can fund your retirement lifestyle in two ways, asset appreciation and investment income. The key is to develop a strategy that not only takes into consideration your current year income needs, but also plans for needed cash flow over the next 3-5 years.
Tax efficient investing is a cornerstone of how we manage money. Not only is proper asset allocation important, but asset “location” can be an important driver of long term returns. The key is to structure your income in the most tax efficient manner, year-in and year-out. Balancing stock option income, social security income, long term capital gains, dividend income and ordinary income can be a complicated maze without the help of an experienced advisor.
Of all the decisions that a P&G retiree faces, this one may be the most important. Each individual’s situation is different.
In some cases (assuming retirees have taken advantage of a QLSD) there can be many “buckets” of assets from which to draw income. These may include a Traditional IRA, a taxable account, stock option proceeds, restricted stock, Social Security income, part-time income, spousal income, and Roth IRAs.
Tax efficient cash-flow planning is critical for the P&G retiree because there is not a pension driving retirement income. At RiverPoint, we aim to construct portfolios that meet or exceed appropriate benchmarks and are tax efficient. Through proactive tax planning with your CPA, proper asset allocation and placing assets in appropriate accounts, we can help with planning for cash flow not only in the current year, but two, three, four, even five years out.
The key is to know what impact different sources of income will have on the tax return and to design a cash flow strategy that is as tax-efficient as possible. With pending legislative changes, this could very well change in the future. The PST and Savings Plan, any stock options and any restricted stock all have deferred tax liabilities. This is why RiverPoint places an emphasis on tax efficient cash flow planning for retirees.
Managing Your Investments
Unfortunately, the market is flooded with the latest investing tips, new “strategies” and "hot" stock ideas. While there is no guaranteed investment strategy, there are principles upon which we build our client’s investment portfolios:
Reasonable and transparent fees: Fees should be clear and easy to understand. When hiring an investment advisor, make sure you have a clear understanding of both the fees being charged to manage your account and also the underlying fees of any investment vehicle such as a mutual fund or an ETF. At RiverPoint, we are a Fee-Only Investment Advisor acting in a fiduciary capacity for our clients.
Ability to Customize: No two clients are identical so why would any client portfolios be identical? There are many considerations when building client portfolios. Our size gives us the resources we need but also gives us the flexibility to customize.
Your tolerance for risk: While most individuals want their money to grow as much as possible in retirement, protecting what you do have should be as important as growth. A retiree should know the risk they are taking if an unforeseen market event were to happen.
Conservative assets to ride out a market swoon: While relatively safe investments such as money funds, short-term government bonds and short term corporate bonds are paying historically low rates of interest. These investments are there not for their yield, but for their relative safety. You should have sufficient assets in these types of investments to pay for unforeseen events.
Estate and Charitable Planning
This is an area that differs greatly from client to client. While we don’t execute legal documents, our years of experience help us to develop estate planning and gifting strategies with your attorney.
While the importance of these considerations vary greatly from client to client, they can have an impact on what distribution strategy makes the most sense for you and your family. Plans can differ depending on if you want your estate to go 100 percent to your family, 100 percent to charity or somewhere in between. Plans can also differ if you prefer to give away money during your lifetime or not until your passing. There are also certain tax benefits to different methods of giving either through low basis stock or setting up a donor advised fund.
The views expressed regarding IRA Rollovers are for commentary purposes only and do not take into account any individual personal, financial, or tax considerations. It is not intended to be a solicitation to buy or sell or engage in a particular investment strategy. Before initiating a rollover, please consult with a tax professional.