Staying Wealthy: Some Strategies For Protecting Your Assets Into And After Retirement.

By: Joe Daly,
Daly Investment Planning Ltd,
Ballinrobe,
Co Mayo. (094 952-0921 or e-mail: info@dip.ie )

Funding Retirement Plans/Pension Plans
Retirement plans continue to serve as tremendous vehicles for accumulating significant wealth. Now there are several more choices to make in deciding how to best take advantage of these tax-deferred retirement vehicles.

Life is about to get a whole lot simpler for wealthy people, and even some middle-income people, who have watched their retirement savings rocket thanks to an extended bull market. One of the primary reasons for this is the Tax Free growth within the funds.

Many economists believe that the greatest threat to our economic well being is the low savings rates of people.
The increases from the minimum tax relief of greater than 15 percent for over 30’s and more for over 40’s and 50’s (while company pension schemes offer more options) makes it even more attractive for the self employed to consider and maximize these advantages of tax-relieved investment.

Among the great benefits of a pension is the ability to set up approved retirement funds when you reach retirement age. This enables you to have an option (subject to certain revenue conditions) to invest the funds in your own name in a tax effective manner letting you decide the risks and investment options chosen.

In the wake of the tax-law changes, what strategies should you use for accumulating wealth inside or outside of the qualified pension plans, that is, plans recognized by the Revenue as qualifying for special tax treatment. Pounds inside these retirement plans grow tax deferred, but they usually come out taxable. Would you be better off accumulating assets outside the plans where you can pay taxes as you accumulate and take advantage of capital gains rates for withdrawals? To answer that question, you'll need to ask a few others. Will the plan contributions be tax deductible? What are the relative tax brackets before and after retirement? What are the relevant tax brackets on withdrawal? It is not always an accurate assumption that you will be in a lower tax bracket after you retire? How long will your retirement last? Finally, what types of assets are being used to fund the retirement plans?


Some Solutions
• Maximize tax-deductible contributions to all company / personal retirement plans and make sure they stay well invested. You know you have a tax benefit today. You may not have a tax benefit tomorrow. The revenue passes major new tax legislation at different times.

• Take advantage of PRSA/PRSA AVC to increase your wealth.

• Continue to fund retirement plans up to your actual retirement, even if that happens to be 60 or 70. You may make tax-deductible contributions to pensions or additional voluntary contributions (AVC) in the case of company schemes.

What about the incentive effect of pension planning? The real benefit of the tax bill for people who qualify is that there are now a greater variety of options for this type of planning that will point people in the direction of saving for retirement and starting early in some cases. The funds will accumulate in a tax deferred environment and portion can be withdrawn tax-free on retirement.

* Make regular, maximum, early contributions to your pension.

• When you leave an employer's retirement plan, keep your retirement plan intact or roll your existing retirement-account balance to your new employers scheme. The compound-interest story should convince you that no amount is too small to retain or roll over. An amount of €10,000 set aside in a good-growth fund/ retirement plan at 9 percent for 30 years can grow to more than €500,000. Inside your pension, there is no tax until distributed at retirement, at which point you have options which can reduce this.

• You should balance the investments inside and outside your retirement accounts. One of the keys to successful investing is asset allocation, which is the distribution of your assets over several of the available investment classes. These classes are cash or cash equivalents such as fixed term account, income assets, growth and income assets, growth assets, and aggressive-growth assets.

• The percentage of your assets allocated to the various classes should depend on factors such as your risk tolerance, age, objectives, and resources. You need a balance. Daly Investment Planning ltd will determine the proper allocation for your situation and risk tolerance.

• Look at the purchase of survivorship life insurance to pay the tax on the second death if you are married. This type of permanent life insurance covers both you and your spouse in one policy. Unlike traditional policies insuring each of you, this single policy insures both of you and pays a benefit only at the second death. The premium is considerably lower than that of a policy or policies paying at the first death. Remember, it is imperative that the policy be owned by someone other than the insured to keep the proceeds out of the decedent's estate for tax purposes. Consult Daly Investment Planning ltd.

 

 
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