Seeking Financial Freedom In Retirement or Sooner

Adrian B Early, Ph.D., MBA, CFP®
Chief Investment Officer, shareGRO™ Practice

The goal of retirement is to live off your assets – not on them.

– Frank Eberhart

Not having to worry about money is almost like not having to worry about dying.

– Mario Puzo

You have to put off being young until you can retire.

– Author Unknown

If you established and are adding to your investment account with income replacement growth, you are watching yourself become more financially free on a regular basis. This is good. Keep it up. And estimate the day of emancipation from needing income paid by someone else (given returns for your risk tolerance). You can work after that. It will just be your choice, what you want to do, not of necessity.

You likely want to save taxes to the extent reasonable. “Reasonable”, I say, due to the value of flexibility, the tax code denies to most who want to defer or legally avoid that expense. But a combination of (flexible) taxable account you are already building with IRA, ROTH IRA, company retirement plan (401 K, etc.) for tax savings can often give a good compromise. Taxable accounts give flexibility beyond that of only IRA, the company qualified retirement plans, or other “qualified” (tax deferred) money, extending way beyond emergency fund to the availability of much of your wealth for needs and opportunities.

Company retirement accounts, that match your payments, gather such payments and can grow capital gains and dividends tax deferred. It is often best to maximize total contributions to these accounts. You want (as always) to select securities with good returns, but this can be easier with less concern about more frequently traded securities or bonds that would increase taxes on capital gains or interest.

To summarize, we are optimizing/trading off flexibility against tax improvements. Your circumstances likely dictate which should govern. But financial planning includes optimizing the overall effectiveness of the account types. Considering this, you likely desire the greater flexibility of (still tax advantaged) account types. You should meet with a financial advisor or Certified Financial Planning® professional and/or study and learn these issues yourself. But I want to mention a couple of these in particular:

1. The Roth IRA,

a.   You pay taxes before investing. All gains thereafter are tax-free, though penalized if removed “early”, before the rules allow.
b.   But the cost basis of invested funds (if properly accounted for), can be removed at any time, and without penalty.
c.   The thing many outside the industry do not know is that Roth IRAs can fund educational expenses of self or others you care to help with school (kids, grandkids, etc.).

2. The Health Savings Account (HSA). These must be used with high-deductible health insurance. You may, but need not spend from the HSA, even for qualified health. Letting them grow in the HSA allows the use of the funds just as in a traditional IRA account. So, ongoing tax deferral can be benefited by leaving the funds there, in a condition more flexible than in a traditional IRA.

So, it is good to keep your wits about you, your options open, and build financial liberty that is good for you, your loved ones, and all of the society. This is especially true if you start and serve others through a business, employing others and supplying products/services they want. May you build liberty soon.  

© 2017 shareGRO™ Practice

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Written by Dr. Adrian B. Early, founder and CEO of shareGRO Practice, a division of StockRoller, Inc.

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Created by Dr. Adrian B. Early, founder and CEO of shareGRO Practice, a division of StockRoller, Inc.