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No matter how old you are or where you may be in your career, it’s never too early to begin thinking about and saving for your retirement. Most people are familiar with the basic types of retirement savings accounts, but retirement plans for physicians offered through a hospital can be much different than those offered in other professions. For doctors thinking about retirement, it’s essential to understand how your doctor retirement benefits might require a different strategy. Here’s a quick breakdown of some retirement accounts that can benefit doctors later in life. 403(b) A 403(b) account is offered by non-profit entities, meaning that some hospitals and certain state and local government positions may fall into this category. In many ways, you will find that this type of retirement savings account is similar to the better-known 401(k). Physicians will make contributions to this account directly from payroll deductions and will see relatively high rates of contribution limits ($22,500 for 2023). If you are over the age of 50, you can also make catch-up contributions of $7,500 during the 2023 tax year. The good news is that your earnings from a 403(b) plan are tax-deferred until withdrawal if you have a traditional 403(b). Roth 403(b)s may not be available from all non-profit employers, but if you do have access to one, your withdrawals will be tax-free after age 59 1/2. Benefits: Low administrative costs Comes in both traditional and Roth at some employers Catch-up contributions of $7,500 per year after age 50 Additional catchup contributions of $3,000 per year ($15,000 total) for long service terms of 15 years 401(k) A 401(k) is a tax-advantaged retirement savings account sponsored by your employer that gives you the freedom to choose where and how your money is invested. You will be presented with a number of investment methods, typically a variety of mutual funds. Oftentimes, your employer will offer a match for what you invest based on a percentage of your salary and how much you personally contribute to the 401(k). You will find that there is quite a bit of crossover between the 401(k) and the 403(b). The major difference is that a 401(k) is offered by for-profit hospitals and other organizations as opposed to non-profits. Like the 403(b), this type of retirement savings account comes with a $22,500 pre-tax limit in 2023 with a $7,500 catch-up amount for individuals over age 50. Contributions cannot go over $66,000 per year ($73,500 for those over age 50) when combining pre-tax contributions, company match, and after-tax contributions. You may opt for a traditional 401(k) where funds are taxed upon withdrawal or a Roth 401(k) where funds are taxed upon the initial investment. Benefits: Can take loans against 401(k) Freedom to select your own investment vehicle to some extent Employer matching Ability to take withdrawals starting at age 55 for those who leave the workforce 457(b) Doctors who would like to save enough to retire early may want to consider using a 457(b) if their non-profit employer offers this type of account. Oftentimes, you will resort to this retirement savings account once you have maxed out contributions to a 403(b) but still want to save more for retirement. These accounts have the same pre-tax contribution limits as a 403(b), at $22,500 annually. The major benefit of choosing a 457(b) account is that you can access your funds earlier. As soon as you leave your position at the company, you can make withdrawals – regardless of your age. If you think that you may be in a position to retire early, then this is the retirement savings that you will want on your side. The only downsides to a 457(b) relate to what to do if you leave your position. This account tends to be more challenging to transfer if you switch employers. You may have to liquidate the account if you leave your position. Benefits: No 10% penalty for early withdrawals May be able to take out a loan against the balance Can be rolled into a Traditional IRA 401(a) This is a lesser-known type of retirement savings account, but many hospitals will put it on the table for physicians. If you have this type of account available to you, contributions to it are less flexible than others like the 401(k). Your employer will set mandatory contribution rules where they contribute a set percentage into your account. They may require employees to contribute a percentage of their pay as well, though this depends on the employer. No matter what the situation may be, these rules are fixed until the employer dictates otherwise. Unlike many of the other retirement savings accounts utilized by doctors, you will not have a Roth option. While you do have flexibility when it comes to selecting investments, you will not be able to withdraw money until you reach the age of 59 1/2, regardless of whether you decide to leave your position early. Benefits: Reduces your taxes on current income May be funded entirely by the employer or require contributions from both Control over how the money will be invested Withdrawal possible via a rollover or a lump-sum withdrawal Health Savings Account A health savings account (better known as an HSA) is another effective means of saving for the future for doctors. These are designed to be used to cover healthcare costs, but they can be great retirement savings accounts as well – especially since individuals often face additional health expenses as they age. The benefits of HSAs are that you can make contributions based on pre-tax dollars, your earnings grow without taxes, and paying for medical expenses with this type of account is tax-free. You can also invest the money in this account in a similar manner to a retirement account. In the upcoming tax year, HSA contribution limits have increased as they have with many of the other types of retirement savings accounts. If you intend to use the HSA for yourself only, you can contribute $3,850 per year or $7,750 for family coverage. Doctors over the age of 55 can make a catch-up contribution of $1,000. Not to mention, employers can make contributions too – and these do not count toward your income for the year. Benefits: Money compounds tax-free for future use Reduces taxes in retirement Ability to write a check to pay yourself back for medical expenses in retirement As a word of caution, HSAs are only available if you have an HSA qualified health insurance plan. Plan Your Retirement with Confidence No matter what retirement savings accounts are offered to you, you need the right support and expertise to know how to take advantage of them. Covenant Wealth Advisors specializes in retirement planning and advice for physicians. Work with our experts to get on track to retire early and on your own terms! Wondering if you’re on track to retire early? Download the Financial Planning Kit for Doctors Considering Early Retirement – a complete toolkit to help you gauge how far your retirement nest egg will go and the feasibility of early retirement. The Early Retirement Planning Kit includes: Your Cheat Sheet to Early Retirement The Physician’s Roadmap to Planning Early Retirement Checklist For Early Retirement & Retirement Retirement Lifestyle Goals Worksheet Grab your copy today! Author: Mark Fonville, CFP® Mark is a fiduciary, fee-only financial advisor at Covenant Wealth Advisors specializing in helping individuals aged 50 plus plan, invest, and enjoy retirement without the stress of money. Forbes nominated Mark as a Best-In-State Wealth Advisor* and he has been featured in the New York Times, Barron's, Forbes, and Kiplinger Magazine. Request a free consultation today Disclosures: Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place.

Charitable work is an important part of many people's lives, whether through financial contributions, dedicating time and talents, or a combination. It’s also a great way to establish your legacy and set a precedent for future generations. For high-net-worth families, it's essential to have a strategic plan, so you and the organization get the most out of your charitable gifts. Here are a few smart ways high-net-worth families can be more intentional about their giving , including qualified charitable distributions and donor-advised funds. First, Create A Charitable Giving Plan You should view charitable giving as another component of your overall financial plan. And if you're nearing retirement, charitable giving should always be integrated into your high net worth retirement plan because it impacts so many different areas of your finances. Like your retirement, estate, and taxes, creating a defined strategy that guides your giving is essential. Doing so brings more intentionality and purpose to the practice. One of the most significant parts of charitable giving is planning for it. Why? Because it forces you to think deeply and critically about the organizations you want to support, how much you want to give, and the most strategic ways to do so. To create your plan, you’ll need to consider the types of organizations you want to support. You might do this by yourself, with a spouse, or include other family members. Is your desired organization of choice a qualified 501c3? You’ll want to check to be sure so you can take advantage of tax benefits. Also, think about how much you plan on giving each year. The amount may fluctuate yearly, but if you have an idea in mind, you’re more likely to follow through and have something to plan with. That last part is key because charitable gifts affect your larger plan, namely regarding tax planning. It's also important to think about how you donate. Work to prioritize giving in the most effective ways possible—which is seldom writing a check or donating cash. You’ll want to ensure the ways you give accomplish two primary goals: Increase the value of the gift to the charity, and Lower your taxable income. Let’s explore some of those methods in more detail. Pro tip : It’s important to note that you don’t have to report your charitable gift to the IRS via the annual gift tax exclusion. The rules work differently for charitable contributions. An individual can deduct up to 30% of their AGI if gifting non-cash assets that were held for at least a year to a public charity. Donate Appreciated Assets As a high-net-worth individual, it’s important to understand the impact of properly managing gains and losses in taxable investment accounts. Harvesting losses to offset realized gains , the wash-sale rule, and maybe even strategic tax-gain harvesting during a low tax year are all things you or your advisor should understand. But if you are charitably inclined, did you know you have another tool that may be even more tax-efficient? If you have an investment with a significant unrealized gain, you might consider donating that appreciated security directly to your charity of choice. That’s because when you donate assets to charity, you aren’t required to pay taxes on any unrealized gain . You'd be able to give more than if you sold the asset, paid taxes on the gain, then donated what's left. Or, you can give the same amount you otherwise would have but avoid a tax bill. Either way, you and the charity are better off. Of course, the charity won’t have to pay any taxes when they sell the asset either! Gifting appreciated securities is an excellent way to give to causes you care about while managing your tax liability. This strategy is beneficial if you itemize deductions because you can deduct the donation's fair market value. Consider a QCD A qualified charitable distribution (QCD) is a donation from an IRA to a qualified charity. It allows you to donate up to $100k ($200k for a couple) without including the distribution in your taxable income. Unlike many tax benefits, you don't have to itemize to take advantage of a QCD. A QCD isn’t really a deduction but prevents the distribution from being included in your taxable income in the first place, so it's perfect for people taking the standard deduction. QCDs can count as your RMD too, so it can be a great way to manage taxes in retirement. By donating all or a portion of your RMDs, you reduce your income tax and can give more to charity. If RMDs push you into a higher tax bracket, consider donating a portion to keep you in a more modest tax bracket. But QCDs do come with drawbacks, and you shouldn’t complete one in a vacuum. In some cases, you might be better off taking the distribution from your IRA and offsetting the gain by donating an appreciated asset worth even more. Although the QCD is a simple strategy that can make a big impact, high-net-worth individuals often fail to implement it correctly. We see this all of the time when working with high-net-worth clients. To help, here’s a free cheat sheet on how to implement a QCD the right way . Working with a financial advisor is a great way to ensure you’re executing this tool correctly. Open and Contribute To a DAF A donor-advised fund is like a charitable investment account. To fund a DAF, you donate appreciated assets, cash, collectibles, real estate, or other investments into a designated account. The gift is considered “complete” once you fund the DAF. You can’t take the money back, but you get to direct the investments and choose when designated charities receive distributions. The money in the account grows tax-free, increasing what the charity ultimately receives. DAFs are a good way to bunch donations so you can itemize. Let’s look at an example of how bunching works. Suppose you plan to donate $20k per year to a charity, but your itemized deductions fall short of the standard deduction of $5k. You don’t get any tax benefit from your annual donation. If you’re able, you could contribute several years' worth of gifts to the DAF in a single year, say $60k, and then direct distributions to the charity over the next three years. Donating in this way allows you to clear the itemization hurdle and claim a larger deduction. DAFs can be anonymous, helping you maintain privacy, but there are some downsides to consider. They can be expensive to maintain with administrative, management, and investment fees and often have high account balance minimums. Why Giving Money Away, Now Will Help Your Estate Later While charitable giving plays an important role in your personal and financial strategy, it can also be helpful in estate planning. Estate taxes may not be high on your list of concerns right now, given that the federal estate exemption sits on a tall chair of just over $12 million (double for married couples). But, it will return to $5 million when the Tax Cuts and Jobs Act expires in 2026 unless new legislation is passed. Giving money intentionally provides tax benefits now, but it also sets you and your beneficiaries up for even more tax efficiency later. There are also several estate planning vehicles that can catalyze your charitable efforts, including a grantor retained annuity trust (a GRAT), charitable remainder or charitable lead trust, defective grantor trusts, and other irrevocable trusts that will streamline the wealth transfer process all while bringing your charitable giving legacy to the next generation. Keep in mind that these strategies are incredibly complex so you may benefit from the assistance of a certified fiduciary financial planner. Our wealth management firm specializes in helping high-net-worth families find financial freedom through comprehensive retirement planning. If you’d like to get started on a more tax-friendly giving strategy and ensure your gift is making as much impact as possible, give us a call . We’d love to help you. About Scott Hurt, CFP®, CPA Scott is a personal financial advisor with Covenant Wealth Advisors, a fee-only financial planning and investment management firm. He advises individuals age 50 plus on retirement income planning, investing, and tax planning strategies for a successful retirement. Schedule a call. Disclosures Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place. Adviser believes that the content provided by third parties and/or linked content is reasonably reliable and does not contain untrue statements of material fact, or misleading information. This content may be dated.

Social Security is an essential component of retirement income and it can comprise a significant portion of your cash flow. The Social Security Administration (SSA) estimates benefits replace about 40% of pre-retirement income, making it an integral cash flow planning resource. But all good things come with a cost. What cost do you have to consider with Social Security? Taxes. So, how is social security taxed ? Download our powerful tax, investment, and savings cheat sheet for more helpful tax tips and insights - new for 2021! The answer not only tells you how much of your Social Security check you get to keep but is itself a planning factor since there are strategies to help reduce taxes on your benefits. Keep reading to learn about the different tax components of social security. When Will Your Benefits Be Taxed? (And By How Much) You are subject to federal income taxes on your Social Security retirement, disability, and other benefits as soon as you start receiving them. But not all of your benefits are taxable. This area can get a bit more confusing. Your benefits are taxed as income—but you’re only responsible for the portion of your income the SSA deems taxable. So how much of your social security benefits does the IRS consider taxable? It depends on your other income sources. But the income thresholds for taxing Social Security benefits are relatively low. Do you and your spouse make more than $32,000 combined? If so, you will likely pay tax on some of your Social Security income. Most filers need to pay tax on benefits if they have multiple retirement income channels like a 401k, traditional IRA, Roth IRA, pension, real estate, earned income, and other investments. From a federal tax perspective, up to 85% of your benefits may be taxable. Some states also levy state taxes on Social Security income, but Virginia isn’t one of them. There are only 13 states that tax Social Security benefits: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont, and West Virginia. We’ll look specifically at how your income is calculated in the next section, but for now, it’s helpful to absorb the basic idea that a portion of your benefits are taxed based on your sources of income. Retirees, understanding the fundamentals allows you to draw a critical connection: the importance of reducing your taxable income in retirement. There are planning decisions to reduce your income calculation to determine your Social Security taxes without reducing your actual income. To get started, plan ahead for what your tax bill might look like in retirement based on all of your income sources, including Social Security. Doing so helps you make choices now that can lower your taxes and avoid unexpected tax bills come tax season! How Does The Social Security Administration Calculate Your Income? Before we look at the formula, understand that it is somewhat complicated to calculate how much of your Social Security is taxable. We recommend using a reliable online calculator through a reputable source or contact your accountant to help you. You can also get a rough estimation by filling out an SSA worksheet . So how is your income calculated? The Social Security Administration uses a figure they call your “Combined Income.” Your combined income is a combination of: Your Adjusted Gross Income ½ of your Social Security benefit Nontaxable interest such as the interest you receive from municipal bonds. As an example, say your AGI (which you get from your tax return) is $75,000 and you receive $2,000 in tax exempt interest. You also get a Social Security benefit of $24,000. Your “Combined Income” is 75,000 + 2,000 + 12,000 = $89,000. So, how is that number used to figure out how much of your benefit is taxable? Assuming you're married filing jointly for the 2021 tax year if your combined income is: Between $32,000 and $44,000, you may have to pay income tax on up to half of your social security benefits. More than $44,000, up to 85 percent of your benefits may be taxable. In this example, your benefits are 85% taxable. Note that if your combined income is below the lower threshold of $32,000, then your benefits are not taxable. Your filing status influences these thresholds. Remember that your AGI in retirement is a function of how you take withdrawals from your accounts. You can actively influence it by being deliberate with your savings, thereby reducing taxes in retirement. For example, withdrawals from a Roth account do not count toward your AGI, while withdrawals from traditional tax-deferred accounts do. Roth conversions, taking partial withdrawals from different account types, and keeping some of your savings in a taxable account are great ways to reduce your future AGI. The bottom line is that effectively managing your income (tax bracket and tax rate) can help reduce the taxable portion of your Social Security benefits. Are Spousal and Survivor Benefits Taxed? As you are likely aware, there are more benefits associated with Social Security than simply individual retirement benefits, like spousal and survivor benefits. Are these benefits taxable as well? Yes. Spousal and survivor, as well as disability benefits, follow the same tax rules as your own benefits do. There is a technicality to bear in mind. When a surviving child collects Social Security benefits, those checks are taxable to them. In most cases, a minor child would not have much (if any) other income, so the formula often results in none of the benefits being taxable. How To Factor Social Security Income Tax Into Your Financial Plan You may not have a ton of control over how your Social Security is taxed. For many taxpayers, and most of our clients, taxation of Social Security benefits is unavoidable, especially if you and/or your spouse have a sizable pension. This is also true later in life when you start to have larger required minimum distributions from IRAs and other retirement accounts. However, you won't know unless you specifically consider it in your plan. Social Security plays an important role in your retirement plan, so maximizing every dollar you can is only a good thing. Factor Social Security taxes into your retirement income plan and see if you can insulate other areas with tax-efficient measures like maximizing Roth accounts, asset location, tax-loss harvesting , or other ways to reduce your AGI. Contact us to see if we can help you reduce the taxes on your Social Security benefits as part of a comprehensive retirement income plan. We're passionate about proactive tax planning at Covenant Wealth Advisors and will work with you and your tax professional to create a plan that maximizes every dollar possible. Disclosures Founded in 2010, Covenant Wealth Advisors is a fee-only financial planning and investment management firm located in Richmond and Williamsburg, VA. We specialize in helping individuals age 50 plus design, execute, and protect a personalized financial plan for retirement. Contact us to see how we can help you enjoy retirement without the stress of money. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place.

You've worked hard for your money. Now it's time to enjoy it. Finding the best investments for income in retirement will be paramount to your success. Even with a investment review cheat sheet , making your money last won't be easy. According to the most recent longevity data from the Social Security Administration, a 50-year-old male can expect to live another 30 years, while a 50-year-old female can expect to live for 33 more years. At age 60, men and women can expect to live another 22 and 25 years, respectively. These statistics highlight the jarring reality that retirees will most likely need to sustain income for decades. Reaching retirement is a significant milestone and also a time of powerful financial and investment changes. One of those changes is converting your growth portfolio into an income portfolio. Download Now: Free Investment Portfolio Checklist So, what are the best investments for income in retirement? Here's what we'll cover to help answer that question: Overview Understanding Diversification ETFs and Low-Cost Index Mutual Funds Immediate Annuities Individual Bonds and Bond Funds Real Estate Investments Dividend Paying Value Stocks Small Company Stocks Conclusion Overview The best investments for income in retirement should help you create sustainable income for the rest of your life. Your investments should also help you maintain financial security. To accomplish these goals, you’ll need to construct an investment portfolio with different investments, each working to complement the other. Unfortunately, there is no single investment that will solve your retirement income problems. After helping people invest for nearly twenty years, I know this from experience. The good news is that once you know what you're trying to accomplish, finding the best investments gets a little easier. While every situation is different, each investment you select should serve as a building block to improve your overall portfolio in the five areas below: Risk Return Cost Taxes Income For example, ask yourself the following questions: How does the investment I'm considering help me better manage the risk in my portfolio? How does the investment I'm considering help me get the returns I need? How does the investment help reduce my costs? Is the investment tax efficient? How does the investment help my portfolio create the income I need to maintain my lifestyle? Remember, no investment is perfect for all situations. But when combined together, the best investments for income in retirement should create a total portfolio that helps you create sustainable income for life. Understanding Diversification In your working years, growing your portfolio may be a primary concern. But when you retire, your attention often turns toward reducing risk and making your money last. That’s where portfolio diversification* comes into play. Diversification is one of the most critical elements of an investment strategy. It is a foundational building block of any investment plan. Whether you’re a novice investor or in your retirement prime, diversification is a mainstay for any long-term portfolio. So, when picking investments for retirement, diversification is a telling factor. Why does diversification hold so much value? Diversification seeks to manage your portfolio’s exposure to risk and has the potential to increase your portfolio's efficiency. An efficient portfolio has the potential to do two main things: Increase expected returns Reduce fluctuations in overall portfolio value While not guaranteed, proper use of diversification may accomplish these two objectives relative to a portfolio that is not adequately diversified. For example, did you know that all stocks from 1994 to 2020 had a compounded average annual return of 8.2% per year? However, if you exclude the top 25% of performers each year the return drops to -4.7%! That’s why diversification matters. If you aren't diversified enough, evidence suggests that there is a high probability that you can end up owning the worst performers. When it comes to diversifying your investments for income in retirement, remember that your fundamental risk is having too much exposure to a single investment. Before retirement, you have time to make financial adjustments or work a little longer if something happens. Your golden years don’t offer the same flexibility. What factors make a portfolio diversified? There are many factors that contribute to a well diversified portfolio including: # of holdings Exposure toward stocks, bonds, real estate, or guaranteed income sources Exposure toward value companies and growth companies Exposure toward large and small companies Exposure to guaranteed income sources such as pensions or social security. In practice, the best investments for income in retirement should contribute toward your overall game plan. When it comes to creating a retirement income portfolio, the sum of the parts is always more powerful than the individual components by themselves. In practice, we believe a diversified portfolio should contain thousands of stocks and bonds across many industries and sectors. Owning just a handful of stocks simply doesn’t cut it. You can achieve a diversified portfolio by being deliberate in your asset allocation (mix of investments) and selecting a mix of index funds, exchange-traded funds (ETFs), mutual funds, stocks, and bonds. Remember, your asset allocation should also consider your retirement age, risk tolerance, and retirement goals. Here is an example of an asset allocation we actually use with clients at Covenant Wealth Advisors. This portfolio may be great for some investors. But it may be terrible for others. It all depends on your personal goals, risk tolerance, tax situation, need for income, and more. Go global You should also pay particular attention to geographic diversification. International diversification should always be considered when selecting the best investments for retirement income. Why? Investors have a well-documented tendency to heavily invest in companies that are geographically close to them. This habit is called home-country bias. Unfortunately, "home bias" is as harmful to your retirement income portfolio as concentrating too much in any one industry or sector from a risk perspective. To consider how undiverse a portfolio composed primarily of investments in the United States is, just consider the size of the non-U.S. equity market. The chart below shows the world market capitalization of stocks across different countries. As illustrated in the chart below, the United States represented 57% of the global equity market capitalization in 2020. That’s certainly a lot for one country, but the other 43%, nearly half the opportunity, lies outside the United States! That means the best investments for income in retirement may also be located beyond U.S. borders. Remember, too, that the power behind diversification lies in how the investments relate to each other when creating a complete portfolio. When one investment lags, will there be another investment in the portfolio to pick up the slack? If all of your investments are going up at the same time, by definition, you aren't diversified! When one investment "Zigs" the other should "Zag". The point here isn’t to try and guess which investment will outperform another in a given year—you simply can’t. The point is to remember proper diversification and to hold broad exposure to many parts of the global economy. Now that you have a firm understanding of why diversification is so important in retirement, let’s talk about tax efficiency. Double Down on Tax Efficiency When it comes to choosing the best investments for retirement income, don’t forget about taxes! Once you reach retirement, managing your taxes is one of the best ways to get more out of your savings and increase their longevity. The investments you select, your withdrawal plan, and even timing strategic decisions like Roth conversions or tax-loss harvesting can all affect how much you will owe in income taxes. The secret? Keep taxes top of mind from beginning to end. Proactive tax planning is all about balance, so try to keep a multi-year perspective because sometimes it makes sense to increase your taxes one year to reduce them even more, the next. Your retirement income plan should consider tax-efficient investments. After all, it’s how much you earn on an after-tax basis that determines your true return in the first place! Now that you know the key considerations for a sound retirement income portfolio, let’s dive into the best investments for income in retirement. 1. ETFs and Low-Cost Index Mutual Funds ETFs make excellent retirement investment vehicles for creating a portfolio designed to provide you with adequate income. There are several reasons why ETFs are so valuable. ETFs generally have lower costs. Investment fees can reduce your total returns over time, so managing your fees should be a top priority both before and during retirement. ETFs are designed to operate more efficiently than comparable mutual funds, resulting in lower costs on average. These costs include the administrative expenses of running the fund, management fees, trading costs, and fees associated with marketing the fund. ETFs are generally tax-efficient. The ETFs structure also makes them extremely tax-efficient. Compared to mutual funds, it’s much easier to control your capital gains with an ETF. Why? Because ETFs do not pass capital gains through to individual investors. Instead, you only incur capital gains on ETFs when you sell them. This allows you to push more of your capital gains into favorable long-term tax brackets and time the realization of gains to take the best advantage of offsetting capital losses. ETFs offer better liquidity. Mutual funds can only be redeemed once per day at their net asset value, which must be tallied after the market closes. ETFs, however, trade just like stocks. This allows you to reallocate your portfolio in real-time rather than once a day. ETFs are great for diversification. For most indexes that exist, you can find at least one ETF that tracks it. This allows you to quickly build a portfolio with the broadest diversification. 2. Immediate Annuities In the finance world, there is a lot of confusion about annuities. That’s because there are many different types, each with different purposes, and they often get lumped together. In my experience, I’ve found that many annuities simply don’t make sense from a cost perspective. Additionally, they often tie up your money for years on end. Unfortunately, financial advisors often recommend them because of the fat commissions they receive after selling them to unassuming investors. Annuities can be very expensive, complex, and many have withdrawal penalties. For the most part, I don’t like annuities! However, not all types of annuities are unnecessarily complex and expensive. One particular type of annuity that you may consider as you allocate your investments for retirement income is an immediate annuity. When used appropriately, immediate annuities can bring a steady stream of income to you and your family. Unlike other annuities where you pay an insurance company and benefits are distributed at a much later date, you receive the benefit of an immediate annuity “immediately” after you purchase the product. In simple terms, with an immediate annuity, you give an insurance company a sum of money, and in exchange, that company provides a guaranteed income stream. Breaking down immediate annuities There are some decisions to make about your immediate annuity. First, you’ll have to decide on the type of payment you want to receive. There are two basic types of immediate annuity payments: fixed and variable. Fixed payments are a set dollar amount that doesn’t adjust over time. Variable payments will fluctuate based on the performance of some underlying benchmark such as an index. Depending on the company issuing the annuity, you may be able to choose an inflation adjustment option, but the tradeoff will be a lower starting payout. Another choice you’ll have to make is the period over which the annuity will provide an income stream. You can choose to have your annuity payout over your lifetime or for just a set number of years. A lifetime payment option makes sense when you want to guarantee a certain minimum amount of income for the rest of your life. A fixed period called a period certain option helps bridge a known time span such as the time between retirement and the start of a pension benefit. Shopping for immediate annuities As you shop for an immediate annuity, you’ll be comparing payout rates on different contracts. Pro tip: Don’t confuse the payout rate on an immediate annuity with a rate of return on investment. They are not the same thing. For example, a 5% payout on an annuity that costs you $100,000 will provide you with a $5,000 payment, but that is partially a return of the principal amount. The most important thing to remember about annuities is that they are insurance products. For the most part, i nsurance products are designed to protect, not invest. An immediate annuity is a supplementary tool for creating income in retirement, not for growing your retirement account. An annuity is suitable for ensuring that you have a known amount of income coming in. The tradeoff is that you may lose the flexibility you would have if you kept that money invested in stocks, bonds, and ETFs. An immediate annuity may be a good option for you if you need to guarantee a portion of your income. But, they aren’t great for everyone, which is why you should get professional advice. 3. Individual Bonds and Bond Funds Bonds are one of the primary asset classes of investments , so most investors are familiar with them. But there is much more to using bonds for retirement income than simply deciding on an allocation and receiving interest payments. Interest payments are nice and can certainly be a part of your income plan, but you can get a lot more out of your bonds with specific strategies designed to optimize your retirement income, manage taxes, and provide balance and liquidity in your retirement portfolio. Some investors question bonds because interest rates are so low as of 2021. Don’t fall into the trap of pursuing bonds for their yield alone. High-yield bonds, for example, have a high risk of default. In fact, we almost never recommend them to clients nearing retirement due to their high risk. The right bonds can be a powerful contributor to creating a stream of income in retirement. The various types of bonds Like annuities, there are different types of bonds and the differences matter. Corporations, state and local governments, and the U.S. Treasury all issue bonds. Some federal agencies, such as the FHA also issue bonds. Companies issue corporate bonds to finance their operations, research, and expansion. The interest you receive from corporate bonds is taxable, and the interest rate will usually be a little higher than comparable bonds of other issuers. State and local governments issue municipal bonds. These are often referred to in short as muni bonds. While the stated interest rate on muni bonds will be lower than comparable corporate bonds, it generally received tax-free. Because of that, the net income you keep could be higher on a muni bond relative to a taxable bond depending upon your federal and state tax rates. U.S. Treasury bonds are backed by the money-creating authority of the Federal government, making them the safest form of debt security. The interest is also not taxable at the state and local levels. Each type of bond can be purchased individually or through an ETF or mutual fund. In addition to the interest income that bonds provide, they also serve to protect your principal investment and provide a basis for rebalancing your portfolio to take advantage of market volatility. Let’s take a look at how this concept works. Bond strategies to consider When equity markets fall, your portfolio becomes mismatched. The more stable bond position in your portfolio, then, will need to be reallocated to reinstate your portfolio back to your appropriate allocation. This shift naturally causes you to buy stocks when prices are lower without timing the market. One strategy involving bonds that that some investors consider for retirement income planning is the bond ladder. With this strategy, you invest in bonds with staggered maturities so that a known amount of principal matures at regular intervals. For example, you may build a bond ladder to have bonds that mature every six months for ten years. This strategy is a way to guarantee that you have a certain amount of liquid savings available without having to worry about selling equities in a lousy market. Over the long term, the total return you receive from bonds has a higher likelihood of generating lower returns than what you’d get on stocks. But that isn’t the point of buying bonds. Three fundamental reasons drive the value for owning bonds in a retirement portfolio: Short-term, high-quality bonds are generally more stable than stocks. Bonds provide a source of income, tax-free in some cases. Bonds may provide a source of liquidity for major purchases in retirement, especially when the stock market is down. Bond ladders may be great for some investors. But, at Covenant Wealth Advisors we prefer using well-diversified mutual funds or ETFs for most of our clients. The reason is that it’s less expensive to purchase bonds through a mutual fund or ETF, and it’s easier to diversify the holdings. Here are some examples of low-cost, well-diversified bond fund investments: Fidelity Short-Term Bond Index (FNSOX) Vanguard Ultra-Short Term Bond Fund ((VUSFX) iShares S&P Short-Term National Muni Bond ETF (SUB) 4. Real Estate Investments Real estate is an asset class with unique characteristics that make it an attractive investment for retirement income. Let’s examine three special types of real estate investing along with their benefits and drawbacks. Rentals Rental real estate provides steady cash flow in the form of rent that will generally keep pace with inflation over long periods. It’s not risk-free, however. Tenants do not always pay rent on time, and you may have vacancies between tenants. You are also on the hook for damages and property updates, among other variables. If rental real estate is part of your income plan, make sure to account for these periods of lost rent in your projections. REITs Not everyone is interested in being a landlord in retirement. Real estate investment trusts, or REITs, allow you to invest in real estate without the need to manage the property and collect rent. REITs pull money together from many investors to invest in many properties, similar to how a mutual fund pools investor money to buy stocks. Not only do REITs handle all the administration and management required, but they are legally obligated to pay out at least 90% of their income to investors. REITS can be purchased through well diversified mutual funds and ETFs including: DFA US Real Estate Securities Portfolio (DFREX) Vanguard Real Estate ETF (VNQ) iShares US Real Estate Index (IYR) Reverse Mortgage If you own your home, then a reverse mortgage provides you with a way to access the equity you have built. A reverse mortgage is a loan that homeowners age 62 or older can take to access the value in their home. That value can be received via a lump sum, fixed payments, or a line of credit. Unlike a traditional mortgage, you don’t make regular payments on the reverse mortgage. The loan must be paid in full once you move out of the house or pass away. As the name describes, with a reverse mortgage, your lender sends you a monthly payment from your home’s equity. While flexible and convenient, a reverse mortgage effectively builds your debt balance up over time rather than paying it down. Should you use a reverse mortgage? Before you decide, you need to understand that it can be expensive and risky. You will have to pay fees associated with the reverse mortgage, and interest accrues on your debt balance. The origination fee alone could cost you as much as 2% of your home's value, and then there will be ongoing mortgage insurance. A reverse mortgage could also cause you or your heirs to lose the home. If you fail to upkeep your taxes and insurance, then the bank can foreclose on you. If your heirs cannot pay off the debt balance when you pass away, then the bank will sell the home to pay off the debt. Any remaining equity, if any, may go to your heirs. There are some powerful tax advantages to reverse mortgages as well. Reverse mortgages are not an investment per se, but they can be a great addition to your overall retirement income strategy If used the right way. 5. Dividend Paying Value Stocks Value stocks can often produce dividends for retirement income. You can either invest in dividend stocks directly or through a mutual fund or ETF. What are value stocks? Value stocks are companies that have low prices relative to other fundamentals such as book value or sales. Value stocks tend to be less “expensive” or undervalued and generally pay a higher dividend than their counterpart, growth companies. History has shown that value companies have outperformed growth stocks over time. For example, in the chart below, notice that value companies beat growth companies 81% of the time over 10-year periods from 1926 to December 2020. Past performance is no guarantee of future results, but understanding the performance of value over time can provide greater insights into strategy going forward. Diversification across value stocks is essential because there is some risk that companies may pause their dividend payments if business slumps and cash flow becomes tight. If you rely on the dividend from a single company, this could put a significant portion of your retirement income in jeopardy. Additionally, while value stocks have higher expected returns going forward, they also tend to be more volatile. You can mitigate the risk of having too few holdings by looking for mutual funds or ETFs that target a diversified bucket of value stocks. Examples of value funds include: DFA U.S. Large Value (DFLVX) DFA U.S. Core Equity 1 (DFQTX) Vanguard Value ETF (VTV) 6. Small Company Stocks The best investments for income in retirement would not be complete without including small company stocks. What are small company stocks? Small-cap stocks can be defined as companies located in the United States or abroad that represent less than 10% of market capitalization by size. Some say that small company stocks are stocks that have a market capitalization of $2 billion or less. It really depends on the state of the market at the time. Many investors investors invest in index funds that track the S & P 500. This popular benchmark represents the largest 500 companies in the United States. It’s important to own big companies. But a well-diversified income portfolio in retirement should also include exposure to smaller companies. Why? Similar to value companies, history has shown that small company stocks have historically outperformed their larger counterparts. While there is no stock that outperforms all the time, and there are certainly no guarantees, owning small company stock in your retirement income portfolio can help increase expected returns. Higher returns may help make your money last longer. Another reason you may consider small companies as an investment for your portfolio is that large companies don’t always perform well. For example, from 2000 to 2009 US large companies averaged a negative return over the ten year period known as the “lost decade.” Here are a few examples of small-company stock investments that are well-diversified, low-cost, and tax-efficient: DFA US Small-Cap Portfolio (DFSTX) Fidelity Small-Cap Index (FSSNX) Vanguard Small-Cap Index ETF (VB) How The Best Retirement Investments Fit Together Unfortunately, it's not enough to simply select the best retirement investments to create income in retirement. Your investments should be part of an overall asset allocation that matches your risk tolerance, income needs, return objectives, and tax situation. Your asset allocation is the most important factor when building a portfolio for retirement. Don’t just focus on chasing the investment that provides the most cash flow or the highest yield. When creating income in retirement, we prefer a total return approach . Total return investing places greater emphasis on diversification than investing strictly for yield. Income is generated from capital gains, dividends, and interest rather than just dividends or interest alone. The result is a retirement portfolio that has greater potential to make your money last longer in retirement. We believe that a total return approach is superior to seeking investments that strictly focus on maximum yield. Here is the difference between both approaches: Ultimately, chasing high yield investments alone can leave you undiversified, expose you to unnecessary and inefficient risks, and increase the taxation on your retirement income. Conclusion Choosing the best investments for income in retirement is a meticulous and comprehensive process. Before you choose any investments, you should determine the right asset allocation for you. This starts with assessing your risk tolerance, income needs, and spending requirements going forward. Investing for income in retirement is about finding the right balance. A total return approach that incorporates a diversified mix of index ETFs, immediate or fixed annuities, bonds, real estate investments, and dividend-paying value stocks, and small company stocks is an excellent way to sustain your income and protect your principal for the long term. But, it’s not the only way and every situation is different. With every moving piece, and as vital as it is to get it right, it’s worth having a qualified professional help you. A retirement financial advisor will have the knowledge and experience to identify opportunities to reduce your risk, build and maintain a diversified portfolio, and manage your distributions in the most tax-efficient way possible. Devote some time upfront to finding an advisor that is capable of guiding you through the best retirement possible. At Covenant Wealth Advisors, we can help you find the best investments for retirement, put together a plan, and manage it as you go, so you can focus on living in retirement. Do you need help selecting and managing the best investments for income in retirement? We would be glad to help you with your own investment plan. Call us today to get started. About Mark Fonville, CFP® Mark is a personal financial advisor and the President of Covenant Wealth Advisors. He advises individuals age 50 plus on retirement income planning, investing, and tax planning strategies for a successful retirement. He has been featured in the New York Times, Barron's, Forbes, and Kiplinger Magazine. Schedule a call. Disclosures: Covenant Wealth Advisors is a registered investment advisor serving clients across the United States with offices in Richmond and Williamsburg, VA. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. *Diversification does not guarantee against loss. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance, and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place.

Effective investment management requires periodic rebalancing. Without it, you’ll execute something other than your intended plan. But what is it, and how often should you do it? This article will explain how portfolio rebalancing works and help you understand its benefits. While reading, you may wonder how these tips could impact your rebalancing plan. Consider requesting a free Portfolio Checkup with one of our financial planning experts today. What Is Portfolio Rebalancing? Before we get into what rebalancing is, let’s set the stage. When you create a portfolio, you (and your financial team) blend specific investments in a combination appropriate for your risk tolerance, risk capacity, time horizon, and goals. Here, you’re building a diversified portfolio that helps you reach your financial goals. At a high level, you can think about the appropriate investment portfolio as a mix between stocks and bonds. For example, a retiree might hold 60% equities and 40% fixed income in their retirement accounts. As markets move, each investment will react in different ways. Some markets may fall while others rise, or they may simply move at different rates. Over time, these differences will likely cause your portfolio to become out of balance, which can impact those measures we set at the beginning. For instance, the initial 60% stocks and 40% bonds portfolio might become 70% stocks and 30% bonds. This indicates that equities carry too much weight in that investment account. Regular rebalancing re-aligns your portfolio and helps keep it functioning at its best for you. But to do that, you’ll need to buy and sell assets to maintain appropriate portfolio allocations and asset mixes. Let’s bring some simple numbers into the mix. Say you have a $1 million portfolio. In this example, $600,000 would be the “right” amount to have in stocks. But after some market shifts, it has grown to $700,000. At the same time, your bond holdings should be $400,000 but are instead at $300,000. To correct this, you’d sell $100,000 worth of stock investments and buy $100,000 worth of bonds. While this example focuses on stocks and bonds, there is a lot of diversity in the asset classes you’re investing in, like exchange-traded funds (ETFs), target date funds, bond funds, index funds, mutual funds, and more. Your specific allocations depend on your goals and investment strategy. No matter your mix of investments, stock markets regularly shift and change and often experience volatility, so it may not be wise to check and rebalance your portfolio after every single market fluctuation. Trading too much can create excessive taxation and pull your investments even further out of whack. Instead, it’s helpful to set guardrails that help you know when your portfolio is “off” target. How Frequently Should You Rebalance? There is no single correct rebalancing frequency. What is suitable for you depends on your circumstances, including your level of knowledge, tax situation, and the tools you have available. However, regardless of how or when you choose to rebalance, you must set a regular time to evaluate your investments—monthly, quarterly, annually, etc.—to determine if a rebalance is necessary. You may or may not need to make any changes when you check, but unless you check, you won’t know. Regular monitoring helps you make more informed investment decisions. At Covenant, we don’t use time-based rebalancing. Instead, we track variance from your intended target and rebalance it as your portfolio mix falls outside of your ideal target asset allocation by a specific percentage. For example, if you have a 60/40 portfolio and we rebalance when your allocation drifts by 5%, we would rebalance any time the stock portion fell to less than 55% or increased to more than 65%. This strategy takes a more holistic approach to your ongoing asset allocation and larger investment goals. We also think it’s imperative to be flexible enough to allow for changes outside your predetermined windows should the markets drastically shift. Sometimes the immediate effect is severe enough to warrant that extra attention. A typical example is if the markets crash right as you retire. It may not make sense to rebalance after taking your income withdrawal if it would require you to sell stocks because you’d lock in the loss. What Benefits Come From Rebalancing? Rebalancing is necessary because it ensures your portfolio remains aligned with your short, medium, and long-term goals. Look at your accounts in combination with each other, as each account may have different goals. Suppose you have a portfolio invested for long-term goals like retirement income, but the stock allocation has fallen significantly. In that case, you may actually be holding a portfolio that is better suited for medium or short-term goals like purchasing a vacation home in the next 5 years. You shouldn’t invest for retirement the same way as a major upcoming purchase. Be specific, too. For example, consider whether you have raised enough cash for the quarter to cover monthly income distributions or future cash needs. If not, make sure you don’t sell the wrong investments and push your portfolio even further out of balance. Rebalancing check-ins also give you a chance to evaluate how your allocations are working for you. If you need to make larger strategic decisions about your allocation, this is a perfect time. For example, are there tax benefits like tax-loss harvesting that you can employ with your rebalance? What about net unrealized appreciation in retirement accounts as you start the transition into retirement? Before You Rebalance, Set A Strategy So you’ve decided that a regular rebalancing cadence is good. Great! But don’t start just yet. There are some cons to consider. Perhaps the most significant is that selling too frequently can increase potential capital gains exposure. This trade-off can be tricky at times. If your portfolio drifts too far out of balance, it may misalign with your goals. But if markets move fast and you rebalance too frequently, you’ll end up creating a good amount of tax drag with short-term capital gains. This is one reason we often recommend setting a range that you allow your portfolio to drift within before it triggers any trades. It would be best if you also considered the types of accounts that are more tax-friendly for rebalancing, like a 401k and IRA and not a taxable brokerage account. You may be able to adjust these accounts and leave your taxable accounts alone, thereby shielding the entire move from capital gains taxes. If you employ this strategy, remember to look at each account and its role in the larger financial picture. If you touch one account, will you need to adjust another? Would doing so significantly alter your broader plan? You also need to consider the transaction costs when buying and selling different assets. Get Rebalancing Help Remember, your goal when rebalancing is to maintain diversification and risk exposure long-term. The bottom line is there’s a lot to think about when it comes to rebalancing your investment portfolio. Do you understand how rebalancing can help your overall portfolio management but are not sure you want to tackle it on your own? Reach out to your financial advisor for help. Rebalancing is an important component of your personal finance health. Each of our clients has a rebalancing strategy that we monitor and implement. We can help you too. Start by requesting your free Portfolio Checkup . Broderick Mullins, MBA Broderick is a fiduciary, fee-only financial advisor at Covenant Wealth Advisors serving clients across the United States. He specializes in helping individuals aged 50 plus create, implement, and protect a personalized financial plan for retirement. Schedule a Free Consultation Disclosures Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place.

Proactive tax planning can be instrumental in your retirement plan and, when wielded properly, can help you achieve your financial goals. However, people often confuse it with tax preparation, meaning they miss many valuable opportunities. Sound tax planning is a year-round strategy, so here are 5 important questions we think you should always ask your financial advisor about your tax plan. Tax Planning Vs. Tax Preparation Before we jump into the questions, it’s essential to highlight the difference between tax planning and tax preparation. Tax preparation concerns accounting for all financial matters within a given tax year and filing the appropriate information on a tax return. Minor planning is often involved, which usually focuses on maximizing deductions to reduce the tax bill as much as possible. Tax planning, on the other hand, is thinking about ways to reduce your total tax liability over multiple years. That strategy sometimes involves taking steps that increase your tax bill now to reduce your tax bill further at some point in the future, like with a Roth conversion or strategically realizing investment gains. The focus is on forecasting which actions you should take and when rather than recording the actions you already took. In other words, tax preparation is reactive, and tax planning is proactive. Tax planning and tax preparation are vital in different ways, and we can help you with both. We are incredibly passionate about the impact tax planning can have on your long-term financial strategy. Here is a 2023 tax number reference guide to help as you start to think about your own tax plan as well. Now, let’s dive into the top 5 tax planning questions to review with your wealth advisory team. Question 1: What’s Your Approach To Tax Planning? Asking this question will help you understand how the advisor thinks about tax planning in relation to your larger financial and investment plan… or if they do at all. Ask them specifically about their process and how they track progress. How do you go about creating a tax plan for your clients? What type of strategies do you see performing well? How do you tailor those strategies to my situation? What are the signs that the strategy “works”? When will you make adjustments? How does tax planning fit into your investment philosophy? There are many good answers to these questions, but you want to hear that they have a process in place and take it seriously. This question should also reveal what your current financial advisory team or potential advisor does to constantly add value. Beyond what they lay out during an initial plan, they should update tax plans annually. Doing so ensures you’re staying up to date with significant life changes that could impact your tax situation, like retiring, selling a business, selling significant positions in company stock, buying a house, marriage, etc. Sometimes you’ll only need minor tweaks, but in other years new opportunities present themselves. For example, when your income is lower in early retirement, you may consider a Roth conversion. Even though it could increase your taxable income, you could pay less in the long run if you aren’t collecting social security, pension income, required minimum distributions from retirement accounts, etc. You want to make sure your advisor can recognize and act on these sorts of advantageous opportunities. Question 2: Based On My Situation, How Can I Improve My Tax Standing? Once you ask this question, expect your advisor to ask you several questions in return because they’ll have to deeply understand the inner workings of your plan to give the most appropriate recommendations. To do this correctly, they’ll want to look at your most recent tax returns and develop additional questions, which may include the following, Are you taking advantage of every credit and deduction available? If not, are there small things you can do to increase eligibility for things like ACA credits, reduce your IRMAA surcharges, or lower your AGI? Are you managing your capital gains? If not, they should offer specific actions to take to get a better handle on them. Does a Roth conversion make sense? Could tax-loss harvesting help offset larger gains this year? Is your asset allocation tax-efficient? Are you investing in mutual funds, ETFs, index funds, etc., with lower ongoing tax liabilities? These are just some examples; there are so many other possibilities! The strategies you should implement depend on your unique circumstances and goals. Question 3: How Can I Strategically Include Charitable Giving Into My Tax Plan? Many people make regular charitable gifts, but only some consider how to do so in the most tax-efficient way. That’s unfortunate because there are so many tax-friendly ways to give that can reduce your tax liability even further and maximize the value of your gift. Retirees, in particular, have several great tools that your advisor should be familiar with. Qualified charitable distributions (QCDs) are one of those ways. This strategic gifting method allows you to avoid taxation on distributions from your IRA even if you don’t itemize. It also allows you to manage your tax bracket, which impacts other taxable items elsewhere in your plan. Donor-advised funds (DAFs) are another great option that allows you to deduct large gifts in a single year but control the payments to the charity. Depending on how your assets are invested, it could make sense to donate highly appreciated securities. Your advisor should look at your taxable investments to see if donating them directly to charity can help you avoid recognizing capital gains. Bunching is another strategic tax strategy that advisors often miss. Instead of making small donations each year, it’s sometimes better to make one large donation in a single year to clear the standard deduction hurdle and get a larger deduction. Question 4: Does It Matter When I Withdraw Income from Retirement Accounts? The answer to this question is a simple and resounding - Yes! This should be the foundation of a retiree's plan as it integrates investment management, investment strategy, income planning, risk, and taxes. We can help you create a custom withdrawal plan that coordinates all of these elements for your needs. Your withdrawal plan will spell out in black and white the amount you’ll take, the timing of your withdrawal, which accounts you’ll pull from, and how to structure your investments to make it all work to support your lifestyle. Don’t forget about RMDs. One of the reasons that multi-year tax planning is so important is it may reveal ways that you can reduce or avoid RMDs altogether. However, for many people, it will be a retirement reality. Question 5: What Tangible Value Does Tax Planning Bring To My Finances? Taxes are a fact of life and will impact your retirement. Proactive planning means you have more control over that impact and creativity with your financial decisions. Although it helps reduce taxes in the future, that’s not the only benefit of tax planning and may not even be the most valuable. When you plan ahead and consider what is coming down the road, you can take steps to increase flexibility in your income plan and keep your investments running smoothly. A financial plan is not complete without a comprehensive tax plan, and your plan is only fully customized if it includes a tailored tax strategy. We hope these five key questions give you a glimpse into how your current advisor considers your tax situation and can help you feel confident going into year-end. Covenant Wealth Advisors is an independent, fee-only, fiduciary wealth management firm. This means through our fee structure and legal duty, we actively avoid and reduce conflicts of interest to give you financial advice that truly is in your best interest. Our team holds certifications and education like certified financial planners (CFPs), CPAs, and other financial services designations that help us serve you best. Contact us today to get started on your tax plan. Some opportunities are only available until the end of the calendar year, and we want to ensure you don't miss out on anything that could help you improve your tax and financial situation. Scott Hurt, CFP®, CPA Scott is a fiduciary, fee-only financial advisor at Covenant Wealth Advisors serving clients across the United States. He specializes in helping individuals aged 50 plus create, implement, and protect a personalized financial plan for retirement. Schedule a Free Consultation Disclosures Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content is for educational purposes and contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place.

As someone with a high-net-worth , you have a few specific considerations to consider regarding your investments. The basic principles still apply—having a plan, diversification, fee management, and taxes—but you need to think beyond standard investment advice. You can use our free spreadsheet to help you see the different limits and tax rates that may impact you. Here are a few high-net-worth investment strategies to keep on your radar. Traditional Portfolio Management The foundation of your investment plan should be a well-balanced portfolio that considers your goals, risk tolerance, and time horizon. Exchange traded funds, also known as ETFs, make it easy for you to build a scalable and manageable portfolio. This is particularly important as you near or enter retirement. In particular, as a high net worth investor, you may consider focusing on ETFs rather than mutual funds because they are generally: Tax-efficient Low cost You’ll typically also may have fewer “surprise” fees with ETFs. Broadly diversified Keep in mind that your investment portfolio will comprise a wide range of securities that fit your goals, time horizon, risk preferences, and more. As a financial firm specializing in high-net-worth clients, we can help you tailor your investment strategy to help you build wealth sustainably over the long term. Tax Planning Alongside portfolio construction and management, one of the most significant distinguishing characteristics of high net worth investment strategies is the importance of directly incorporating tax management into the investment plan rather than addressing it separately. Many high-net-worth individuals make the mistake of making investment decisions without taking into account their total tax picture. Investing without tax management can create huge tax mistakes and reduce your wealth over time. While taxes don’t have to be in the driver's seat at all times, they should be a central consideration as you select and manage your investments. Tax considerations can also help drive the selection of different types of accounts that you'll invest in throughout your life. Let’s take a look at some of the most common. Account Types Workplace Qualified Retirement Plan If you have access to an employer-sponsored retirement plan like a 401(k), that should be your first stop. Take full advantage of the annual contribution limits to your retirement accounts (Don’t forget the catch-up if you’re 50 or older). If you can choose Roth contributions, that's something worth exploring. Unlike a Roth IRA, Roth 401k contributions don’t phase out because of your income. Also, consider whether making after-tax contributions up to the annual additions makes sense for you. Doing so may allow you to move a significant amount of money into a Roth account by making mega backdoor Roth contributions. Mega backdoor Roth contributions can be a powerful strategy for high income earners who earn in excess of $214,000 for married filers and $144,000 for single filers. Taxable Brokerage Accounts Many high-net-worth individuals have a significant amount of savings outside of tax-advantaged accounts. You should have a deliberate plan for addressing taxes when investing in a brokerage account. Here are some things to consider: Leverage long-term capital gains when possible. Long-term capital gains are generally taxed at more favorable rates than regular income, but you’ll need to hang onto your investments for at least a year to be eligible. Strategically realize capital gains . You pay taxes in your brokerage account when you sell your investments. Perhaps you’ll realize some gains in an otherwise low-income year or a year where you plan to make significant charitable contributions. Employ tax-loss harvesting . Not all of your investments will earn money all the time. So if you have an asset that’s losing money, you could capitalize on it and claim it as a capital loss. You can use tax-loss harvesting to offset higher gains and use up to $3,000 in losses to reduce ordinary income. When tax-loss harvesting, be mindful of the wash-sale rule. The wash-sale rule keeps investors from selling and buying identical or similar investments within 30 days of the sale. What a lot of people don’t know is that the wash rule can be triggered if you sell a stock in one account and repurchase it within thirty days in another account. Be careful! At Covenant Wealth Advisors, we often analyze the impact of realizing long-term capital gains and implementing tax-loss harvesting strategies by reviewing your tax return as well. We suggest that you do the same. Asset Location Consider the tax differences between your various account types when choosing where to hold your investments. In general, try to hold: Your most tax-efficient investments in taxable accounts (tax-free bonds, stocks held long term) High growth investments in Roth accounts over tax-deferred accounts (stocks) Investments that make regular distributions in tax-deferred accounts (bonds) For the investments in taxable accounts, take full advantage of tax-loss harvesting. Recognized losses can offset realized gains on a dollar-for-dollar basis and significantly increase the after-tax return of your portfolio. Implementing the appropriate asset location for your investment portfolio has the potential to: Improve your after-tax returns Transfer more wealth to your heirs Reduce taxation of your assets in retirement Investments You may be able to increase the tax efficiency of your taxable investments by: Investing in assets that have little turnover (won’t generate as many internal taxable gains to be distributed to you) Leaning toward capital gains rather than taxable cash flow (interest and dividend payments) Waiting to realize gains once they become long-term Holding asset classes like individual stocks or passive ETFs for the long-term may help reduce your taxes by reducing turnover. And don't make the mistake of chasing yield on investments for the sake of creating the optical illusion of greater returns. We see this all of the time and it can be a big mistake. Unless you actually need the additional income in the first place, most investors may want to pursue greater returns through a total return strategy. A total return strategy seeks to improve total returns by combining capital gains plus dividends and interest. In an ideal world, high-net-worth investors should want all growth coming from capital gains due to the improved tax efficiency and power of compounding returns. Direct Indexing Direct indexing is a more modern high net worth investment strategy you may want to consider if you want to reduce taxes or if you have highly concentrated stock positions. We are big fans of utilizing index funds for the reasons we outlined above. Direct indexing is similar to investing in index funds. However, it has the added advantage of giving you more control over your particular tax situation. Instead of using ETFs to fulfill your asset allocation, direct indexing takes the approach of buying each individual stock separately. Using this approach allows you to take advantage of potential tax-loss harvesting opportunities at the security level that would otherwise get washed out if you held the index via an ETF. Another potential advantage of direct indexing is to help diversify out of highly concentrated stock positions. For example, let’s assume that you own $100,000 of Amazon stock and your total portfolio is $3 million. In this scenario, Amazon already represents over 6% of your portfolio value. As a result, you may not want to own more Amazon in other holdings such as ETFs or mutual funds. So, what do you do? With a direct indexing approach, your advisor can build an index that excludes Amazon stock to avoid duplicating your current ownership of Amazon. This helps avoid owning more of the stock and better positions you to sell out of the stock over time to build a more diversified portfolio. While not guaranteed, proper diversification may help temper the volatility of your holdings. Municipal Bonds The interest you receive from municipal bonds may be tax-free at both the state and federal levels, making them especially attractive if your state has an income tax. Although tax-free bonds often pay lower interest rates than similar taxable bonds, you may end up with more money in your pocket with a municipal bond. Here is an example of how municipal bonds can benefit high-net-worth and high income investors: John owns a taxable corporate bond that pays 4% interest. He is in the 37% tax federal tax bracket. After taxes, he only earns 2.52%. Martha owns a tax free municipal bond that pays 3% interest. She is also in the 37% tax bracket. However, because the bond pays tax free interest, Martha's net return is still 3%. Martha's return is .48% better than John's return. What's the point? Don’t compare the interest rates of municipal bonds with corporate bonds without accounting for your personal tax situation. Invest To Protect Against Inflation Inflation is likely to play a major role in all areas of our finances, and investments are no exception. You should think about how inflation may impact your financial goals and how you can invest to protect against inflation up to and through retirement . The stocks in your portfolio can serve as a great long-term hedge against inflation. While never guaranteed, the stock market has historically provided a return that exceeds the rate of inflation (called real return). Some fixed-income investments address inflation directly. Those include: Treasury Inflation-protected securities. These bonds pay a fixed interest rate, but the bond's principal amount is adjusted every six months to reflect changes in the consumer price index. The dollar amount of interest you receive is based on the interest rate and the new principal amount. I Bonds are another treasury bond type with a built-in inflation adjustment. Instead of a principal adjustment, the interest rate on these bonds will increase when inflation rises. Bonds also offer investors liquidity, which frees them up to make major purchases, cover planned higher tax bills, and improve cash flow. In addition to bonds, real estate and value stocks have historically proven to be a strong hedge against inflation. Here’s more on how to protect your portfolio against inflation. A High Net Worth Investment Plan Tailored To You As a high-net-worth investor, we’ve walked through a number of ways to enhance your investment portfolio and position yourself to better reach your goals. Contribution limits, deductibility, and tax rates become a much more significant consideration when you reach certain asset and income levels. Many of these strategies require sophisticated financial planning. So, to build a strategy that’s right for you, it’s often beneficial to work with a financial advisor. We would be glad to help you figure out the best high-net-worth investment strategies to help you reach your financial goals. Schedule an appointment with our wealth management firm today. About Mark Fonville, CFP® Mark is a personal financial advisor and the President of Covenant Wealth Advisors. He provides retirement income planning for individuals age 50 plus who have over $1 million in investments. Forbes nominated Mark as a Best-In-State Wealth Advisor* and he has been featured in the New York Times, Barron's, Forbes, and Kiplinger Magazine. Schedule a call. Disclosures: Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place. Adviser believes that the content provided by third parties and/or linked content is reasonably reliable and does not contain untrue statements of material fact, or misleading information. This content may be dated.

Updating your beneficiary information may not seem like an important thing to do, so it often goes unnoticed. However, despite being a simple task, it’s actually a vital element of your estate plan and larger retirement plan . Outdated beneficiary designations can completely change what happens to your assets when you pass. And the effects are often more than just financial, leaving lasting emotional implications for your family members and loved ones. Let’s discuss the importance of updating beneficiary designations and the common major life changes that can be cause for revisions. You might be surprised just how many significant changes can occur within three to five years! Worried about other items to check off your retirement list? Grab our complimentary retirement planning checklists to cross things off as you read! What’s A Beneficiary? First, some background. A beneficiary is any individual or entity (such as a charity or trust) to whom you leave your investments or real estate property. Most retirement accounts and financial products like an IRA, 401k, or life insurance policy provide a space for naming beneficiaries directly on the account paperwork. Beneficiaries listed in these official designations are called “named beneficiaries.” When designated, new assets within an account will pass directly to the named beneficiaries when you pass away. In some financial situations, you may have accounts that don’t include named beneficiaries, like a bank or taxable brokerage account. In this instance, payable on death (POD) and transfer on death (TOD) account titling can serve the same purpose. If you aren’t sure what applies to each of your accounts, speak with your financial advisor and estate planning attorney. As an added protection, consider naming both primary and contingent beneficiaries for all your accounts. Primary beneficiaries are the first in line. You can have one or more. For example, you may have two, with each getting 50%. As long as a named primary beneficiary is alive when you pass, the percentage allotted to them is transferred. Contingent beneficiaries are second in line behind primary beneficiaries. In the unfortunate event that a primary beneficiary predeceases you, a contingent beneficiary may fill the gap. Why Are Updated Beneficiaries So Important? A significant benefit of naming beneficiaries is that official beneficiary designations allow the account to avoid probate—the public process for verifying and assigning assets from the estate to ensure it settles correctly. As with any court process, it can be lengthy and often cumbersome. Passing assets outside of that process can save your family significant time, frustration, expense, and publicity. Leaving less for an executor to manage, also makes the rest of the estate planning process more streamlined. Perhaps more importantly than their simplicity, beneficiary designations also supersede what’s written in your will . If there’s a conflict between the two documents, your beneficiary designation stands. This could create problems if you don’t keep them up to date. Let’s take a look at this common reason for updating your beneficiaries. Suppose you started working for a company years ago shortly after you were newly married. You opened a 401k through your employer and named your spouse the 100% beneficiary. Years later, you’ve since divorced your now ex-spouse and updated your last will and testament to remove them. If you don’t also update your 401k beneficiary designation, your former spouse will still get 100% of it if you pass. Even if you have a new spouse! These sorts of life changes can create traumatic situations more often than you’d like to think. Not only will it leave a surviving spouse in a rough financial position, but imagine how emotionally fraught that situation becomes. When Should You Update Your Beneficiaries? As a rule, your beneficiary designations should change with major life events that alter your family dynamic. You won’t always think about needed beneficiary changes when things happen, so taking the time to review every few years is essential to ensure you aren’t missing anything. Which major life events often lead to a need to update account documents? Think about anything that changes the composition of your family. Common examples are marriage and divorce (your own or your children’s), death, and birth—but keep in mind minors can’t inherit property. It may be better to leave assets to a revocable living trust (as an example) for the benefit of a minor rather than naming the minor directly. Job changes, moving to a new state or home, a change in your health or the value of your estate can sometimes necessitate changes as well. Remember, your estate plan should reflect your goals and values. During your periodic revisions, ensure your documents align with your vision and legacy plan, regardless of your family makeup or any changes that have occurred. Keep An Eye On Your Estate Plan Beneficiary designations are only one component of your estate plan, and your estate plan is only one element of your broad financial plan. This isn’t to say beneficiary designations or your estate plan or unimportant, but that they fit within a larger context, and it’s necessary to keep your eye on the bigger picture. Your needs may change and updating one element likely means that other areas also need attention. This is where your financial advisor and estate planning attorney can step in to help you. At Covenant Wealth Advisors we pride ourselves on developing strong client relationships. We can help you create an estate plan that suits you and your loved ones. We have worked with many families to make sure their estate planning documents accurately reflected their desired outcomes and supported their larger financial plan. We’d love to discuss how we can help you, too. Set up some time to speak with an advisor today . Your estate plan is just one aspect of your larger retirement plan. What other things should you be aware of? Check them out by downloading our free retirement planning checklists to be sure you remain on track. ___________________________________________________________________________________________ Broderick Mullins, MBA Broderick is a fiduciary, fee-only financial advisor at Covenant Wealth Advisors serving clients across the United States. He specializes in helping individuals aged 50 plus create, implement, and protect a personalized financial plan for retirement. Schedule a Free Consultation ___________________________________________________________________________________________ Disclaimer: Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place.

Disclosures: Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place.

Do you have a high net worth (HNW) between $1 million to $10 million but aren’t sure how to make the most of it? If so, congratulations. You have far surpassed the average American. U.S. Federal Reserve data reveals that, between 2016 and 2019, American families saw impressive increases in both median and average net worth - a 2% jump to $748,800 for median net worth as well as an 18% climb to $121,700 for average net worth- demonstrating sustained financial prosperity over those years. Clearly, the average net worth and median net worth of most Americans doesn't come close to high net worth individuals whose liquid net worth exceeds $1 million. Even so, you may be worried about outliving your retirement savings or managing your wealth to create a lifetime of sustainable income while also keeping your taxes low. After all, a dollar doesn't go nearly as far as it once did. You can breathe a sigh of relief though because you’re in the right place. At Covenant Wealth Advisors, we specialize in high-net-worth retirement planning and wealth management. Our approach to personal finance seeks to help pre-retirees find their financial footing before diving into the next chapter of life. Whether retirement is still a few years away or you’re already enjoying your golden years, it’s important to have a plan to monitor and adapt as needed. Before we dive in, take a minute to download our free retirement planning checklists to help you get organized. They're the same checklists we use with clients to help them save money and optimize their investments. What are the key areas of focus for high net worth retirement planning? Let’s take a look. What is the purpose of retirement planning? First, many high-net-worth people find it beneficial to entrust their plan with a financial advisor. Your financial planner can provide the guidance, support, and strategies you need to reach your goals. Before we look at specific elements of a retirement plan, let's first think about the purpose of your retirement plan. The broad purpose of retirement planning is to ensure you can live the life you want without worrying about running out of money . The end result will look different from person to person, which means that how you approach certain elements of HNW financial planning might not be the same as your neighbor, best friend, or co-worker. As a high-net-worth individual, your needs are unique, and building a tailored retirement plan for your personal situation is the best way to reach your long-term goals. Maybe you want to travel worldwide and therefore need to spend more than someone who doesn’t have significant travel ambitions. Or perhaps you have an underlying health condition, so you’ll need more comprehensive medical coverage (and likely higher expenses). Everyone’s financial situation is different, and your retirement plan should reflect your personal circumstances. What should a comprehensive retirement plan look like? Regardless of how you envision living your life in retirement, these are the critical components of a high net worth retirement plan: 1. Your spending goals If the purpose of a plan is to support your lifestyle, you need to translate that lifestyle into spending goals. If you already track your budget, this part will be a little easier. If you don’t, start by thinking about what you spend in a typical month. Account for the everyday living expenses like food, utilities, housing, insurance, taxes, etc., but don’t forget to include what you might spend on “non-essentials” that are a regular part of your life like weekend trips, tickets to shows or sporting events, and gifts for family. The idea here isn’t to start by thinking about what you can do to trim your budget. That part can come next if it’s necessary. 2. Cash flow projections with appropriate inflation adjustments Once you establish a benchmark for your annual funding needs, you need to project that into the future using reasonable assumptions for inflation. Historically, inflation has averaged around 2.5% per year, but as you know, the scales are a bit off balance presently. You can use that as a starting point and may want to adjust depending on the main categories you spend on. 3. Tax reduction strategies in retirement So here’s the thing: we really like tax planning at Covenant Wealth Advisors because so many of our clients are high-net-worth. Proactive tax planning is critical for high-net-worth individuals and families in retirement because it helps keep more of your hard-earned money working for you. Many families aren’t quite sure how to manage their new tax situation in retirement, but we offer unique strategies that can help bring confidence and control back into this vital area of your financial life. With proper tax management, you can stretch your retirement savings even further by actively considering ways to reduce taxes in retirement. The following few points will illustrate a few of these tax-savers! 4. Account drawdown strategy A withdrawal strategy goes beyond considering how much you will withdraw from your retirement accounts. Conventional wisdom has pointed people toward taking roughly 4% from their accounts in the first year, and then increasing withdrawals at the rate of inflation — but your retirement plan shouldn’t be cookie-cutter conventional. How you drawn down your accounts in retirement can have a major impact (good or bad) on your ability to maintain your preferred lifestyle. A deliberate withdrawal strategy considers the amount of money to remove from each account and establishes a plan for how to do so effectively. Will you take simple inflation-adjusted distributions each year? Will you use a guardrail strategy? What about the timing of withdrawals? From which accounts will you withdraw first? This decision is personal to you, and it depends on your income needs, tax bracket, income sources, and more. For example, taking money out of a Roth IRA is different than taking money out of a traditional IRA because one is taxed (traditional) and the other isn’t (Roth). We can help you craft a dynamic withdrawal strategy that maximizes the longevity of your investments. 5. Roth conversions As we alluded to above, qualified distributions on Roth accounts are tax-free in retirement. Building up this tax-free bucket gives high-net-worth retirees so much more flexibility, control, and options in their golden years. But Roth accounts aren’t typically the norm for savings vehicles. Most people save in tax-deferred accounts, and when they remove the money (planned spending, RMDs, heirs), the IRS taxes it at their ordinary income tax rates. If you retire in a high tax bracket, that could mean paying more to Uncle Sam than you’d like. By saving in both tax-deferred and after-tax accounts, you give yourself more options when it comes time to take the funds out in retirement. But here’s the thing: high-net-worth individuals often can’t directly contribute to Roth IRAs due to IRS-established income thresholds. One way to get around this rule (legally) is to do a Roth conversion , where you “convert” funds from a traditional account into a Roth. Roth conversions can be huge tax-savers, especially for high-net-worth individuals in retirement. 6. Social security benefits planning A fixed-income source critical to your retirement income plan is your Social Security benefits. And while they may not make up the majority of your retirement cash flow, they are a significant benefit to take advantage of. Social Security creates a solid base of income that is inflation-adjusted, not dependent on the market, and guaranteed to pay for the rest of your life. In general, many people start collecting benefits at three pivotal times: Early at 62 (by collecting early, you permanently reduce your benefit by about 30%) On-time at full retirement age (here, you’re eligible for 100% of your benefits) Late at 70 (you accrue delayed retirement credits and can boost your monthly check by 25%) High-net-worth retirement planning can help you review the pros and cons of each option and consider other elements like spousal and survivor benefits. It’s also important to consider other fixed income securities like an annuity, pension, cash, and more. 7. Tax-managed investing Tax-advantaged retirement accounts (401k, traditional IRA, etc.) are frequently maxed out by high-net-worth investors due to contribution limits. This mean you probably have significant savings in taxable accounts (brokerage) as well. It’s essential to be mindful of how taxable brokerage accounts are taxed. For brokerage accounts, you’ll have to pay capital gains tax (long or short, depending on how long you held the asset) when you sell. In that case, you can consider investing in tax-advantaged securities like tax-free municipal bonds or managing the investment plan to minimize short-term gains and interest. We can also help you think about the taxable nature of real estate investing. Many high-net-worth individuals and families have real estate as part of their investment portfolios, making it important to properly manage the capital gains. Often times we find that new clients have too much money concentrated in just a handful of individual stocks. Clients often know this is a problem, but they don’t know how to sell out of the positions without taking a big tax hit. A proper tax plan, equipped with tax-efficient practices, can help you unwind these positions and get the proceeds invested into more diversified investment holdings. Ultimately, your investment approach should incorporate tax-managed investing. But, it shouldn't stop there. For a more in depth review of key considerations for your investments, here are 11 questions to ask a financial advisor about your portfolio . 8. Healthcare in retirement Health care is a significant component of any retirement plan. Fidelity estimates that healthcare will take up about 15% of someone’s retirement budget. You’ll have to consider Medicare premiums, out-of-pocket costs, long-term care, and more. No matter how you look at it, health care expenses will be a major part of your retirement budget. But it doesn’t have to be scary! The core of your healthcare plan will likely be Medicare. As with Social Security, you need to make sure you choose the right Medicare coverage. Don’t rely on rules of thumb or go with a particular plan just because your friend did. Analyze the coverage options and consider your own needs, resources, and lifestyle. It’s also important to actively save for your future healthcare costs. One way to do this is by investing in a health savings account (HSA). You can save in these valuable, tax-friendly accounts if you’re enrolled in a high-deductible health plan. 9. Stress test your plan with Monte Carlo analysis. Now you have all the pieces of your retirement plan, it’s time to put them together! Ask yourself, how well does your plan hold up when tested against future probabilities? To help answer this question, we can run a Monte Carlo simulation . Since we can’t know for sure what investment returns/stock market performance will be going forward, we need to test our plans against a range of possible outcomes. Doing so gives confidence and financial security in the plan and identifies areas of weakness to address now before they become a significant problem and possibly derail retirement. For example, Monte Carlo analysis can help you determine if $2 million, $5 million, or $10 million is enough to retire with a high degree of confidence. We wrote a comprehensive case study on the topic here . In addition to ensuring your nest egg will be in strong supply throughout retirement, there are some additional risk management elements to consider like Insurance policy needs (life insurance, long-term care insurance, etc.) Risk tolerance heading into retirement. If this changes, it may impact your investment strategy. Investment fees (now could be a good time to consider a rollover). and additional liabilities. Bonus: Estate Planning A high-net-worth retirement plan wouldn’t be complete without a thoughtful and thorough estate plan. Your advisor can play a big role in helping you craft an estate plan that maximizes your assets and honors your legacy. They can help you analyze, The wealth transfer process (like using a trust to protect your wealth) The pros and cons of using individual retirement accounts (IRAs) as an inheritance plan. Your beneficiaries Properly titling your assets and accounts Tax considerations Cultivating a robust, lasting legacy And more! High-net-worth financial planning and retirement planning at Covenant Each high-net-worth investor's retirement is different, so each plan needs to be different. Regardless of the detail, any retirement plan needs to account for these components to be as effective as possible. Otherwise, you risk throwing hundreds of thousands of dollars away in taxes and poor returns. Even worse, retirement could end up being full of anxiety and concern. Our expertise is providing financial planning for high net worth individuals including pre-retirees and retirees to ensure they don’t miss a step, and we would be happy to speak with you. Secure your spot on our calendar today! Don't forget to download your free retirement checklists and start preparing for your retirement plan. About Mark Fonville, CFP® Mark is a personal financial advisor and the President of Covenant Wealth Advisors. He provides retirement income planning for individuals age 50 plus who have over $1 million in investments. Forbes nominated Mark as a Best-In-State Wealth Advisor and he has been featured in the New York Times, Barron's, Forbes, and Kiplinger Magazine. Schedule a call. Disclosures Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place. Adviser believes that the content provided by third parties and/or linked content is reasonably reliable and does not contain untrue statements of material fact, or misleading information. This content may be dated.

Entrusting your hard-earned money to a financial advisor is a significant decision. When searching for the right professional, you want to find someone with the knowledge, experience, and drive to help you navigate your unique life and financial considerations. If you earn a considerable amount of money, whether through your salary, equity compensation, your own business, real estate, and other investments, you’ll need a firm specializing in high-net-worth retirement planning and investment management. What does it mean for a firm to specialize in high-net-worth wealth management? What should you look for in a financial partner? How can you ensure you make the right decision regarding an advisor? Today, we’ll answer these questions and more! You can also use our checklist of 25 questions to ask an advisor before you hire them. What is high net worth? There isn’t a legal definition of what it means to be “high net worth,” but most classify it as a range between $1 million and $5 million in liquid assets, including stocks, bonds, cash, or mutual funds. High-net-worth investors may also be interested in alternative investments like private equity, venture capital, and more. Conversely, ultra-high net worth investors tend to have $5 million to $30 million, according to Forbes. Why does it matter how much someone has saved? It’s essential to consider this factor because different levels of wealth tend to be associated with different financial needs and concerns, so the strategies and investment advice an advisor uses and recommends will (and should!) differ. Plus, the investment decisions you’ll make will also be distinct! What does the wealth management firm specialize in? First, identify if the firm you are considering even specializes in high-net-worth wealth management. If they do, they should be able to explain what they do and how it is relevant to you. What the advisor says should also match what you find online about them and what they describe on their website. So what are the magic indicators? Here are a few. High-net-worth investment strategies - What do they invest clients' money in? High net worth individuals often have significant investments outside of tax-advantaged retirement accounts, which comes with unique considerations, notably tax-managed investing. Certain high-net-worth strategies can help maximize after-tax returns while also better managing risk to help preserve the wealth that you’ve worked so hard to build. There will also be different portfolio management strategies to consider to minimize taxes and maximize efficiency. High-net-worth retirement planning - Your advisor should be able to develop a sophisticated distribution plan that takes all of your assets into account. They should also be able to advise you on the most opportune ways to get income in retirement, be mindful of taxes, and charitable giving strategies. High-net-worth tax planning - High-net-worth individuals need to be very mindful of taxes, and your advisor should have a deliberate plan for how to address them in your situation. Charitable giving strategies and tax-efficient investments are likely tools. High-net-worth estate planning - If you have considerable assets, you may also have significant goals concerning your estate. As such, you need financial services that also include your estate, like seamless wealth transfer, tax considerations, charitable giving, and legacy. Are they required to put your best interests first? Once you identify that your advisor has the necessary skills, you must ensure they also operate with your best interest in mind. How will you know the answer to this question? Ask the advisor if they are a fiduciary. If they are, they will be willing to put it in writing, so don’t be afraid to ask them to. A fiduciary is legally required to provide you with recommendations that are better for you than for their firm's bottom line. How are they compensated? Make sure you understand precisely how the advisor gets paid and if they receive any commissions or revenue shares from products they recommend to you. Ideally, you want a "fee-only advisor,” meaning your advisor cannot receive any form of compensation from the financial advice they give you other than what you pay them. This payment structure significantly reduces their incentive to make recommendations that are better for them than for you. Your advisor may receive a percentage of the investments they manage for you, typically around 1% to .40% for high net worth individuals. The fee often depends on how much money your advisor manages for you. Other fee-only arrangements include fixed, hourly, or even monthly subscription fees depending on the types of clients the advisor works with. Are they trying to sell you or advise you? This question goes hand-in-hand with making sure they are a fee-only fiduciary. If your advisor seems more interested in selling you a product, steer clear! Wealth management, in all forms, should be led by action and advice rather than products. Products should help you implement a strategy—not BE the strategy. What technology do they use? What you are looking for concerning technology is that the advisor has the appropriate technology in place to manage and track your financial plan and communicate with you. Most wealth management firms use some form of commercially available financial planning software. This software often allows you to link all of your accounts (even accounts not held with the advisor, such as your checking account) to make all of your information available in one place. Ask to see a demo of your potential advisor’s tech. If you work with them, you may be using this software regularly, so it’s important that you feel comfortable using it and like how it looks and feels. How do they communicate? Ask them how, and how often, they communicate with you. You should pay attention to how your potential advisor answers this question because they should be willing to adapt to your preference within reason. Will they call you once a quarter? Email once a month? There’s no right or wrong answer, but you want to know that they are communicating with you often enough and in a preferred method. What are their credentials and experience? Professional certifications are a way of verifying your advisor's field knowledge. The Certified Financial Planner (CFP ® ) is a wonderful designation to look for. To earn the CFP ® credential, an advisor must complete a comprehensive study program covering all the key topics in personal financial planning, pass a rigorous exam, and satisfy experience requirements. Beyond that, other helpful credentials may include the Enrolled Agent or CPA since taxes are such an integral part of high net worth wealth management. At my firm, Covenant Wealth Advisors, we have a team of CFP ® professionals, a CPA, and an MBA. Our financial advisors average over 15 years of experience helping high-net-worth individuals. The Right Firm Is Out There! Finding the best high-net-worth wealth management firm for you can be intimidating because it’s so important to find an advisor you can trust . You also want to work with a firm that’s wealth management services are designed to help you reach your financial goals. Selecting the right advisory firm is a big decision and should be taken seriously. You have a lot of options in your search for the right advisor firm, from private banking to large financial corporations on wall street to independent registered investment advisor firms like ours. As you explore your options, use our list of 25 questions to ask an advisor to help guide you. We would love a chance to speak with you and show you how we can help. Author: Katherine Fonville Katherine Fonville is a personal financial advisor and fee-only financial planner and founder of Covenant Wealth Advisors. She manages investment portfolios for individuals age 50 plus with over $1 million in investments. Schedule a call. Disclosures Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place. Adviser believes that the content provided by third parties and/or linked content is reasonably reliable and does not contain untrue statements of material fact, or misleading information. This content may be dated.

Bonds play a significant role in the wealth-building process and your retirement income strategy. As you grow your wealth, you might want to concentrate on stocks, but bonds offer high-net-worth investors unique opportunities to potentially preserve and provide improved stability within an investment portfolio. It's no surprise then that bonds should be a major component of high net worth retirement planning . Let's take a look at how bonds could potentially help your portfolio and the types of bonds you might want to consider investing in. If you think you may need to review your holdings feel free to request a portfolio checkup , and we will help. Bonds Are Still Important As a quick review on bonds, remember that, unlike stocks, they are debt securities. A bond is an IOU from the bond issuer/borrower to you, the lender, in which they will pay you interest for borrowing that money over a set period of time. They are legally binding contracts that require the issuer to pay you the stated interest payments (also known as the bond coupon) and return your principal at the end of the bond term, or maturity date. The binding agreement is a central difference between stocks and bonds and why they are generally considered safer. Bond prices and interest rates are also inversely related. For example, when interest rates rise, bonds typically fall, and vice-versa. But, with high inflation and historically low-interest rates, many investors are questioning the bond market’s relevance. After all, investors continue to face challenging headwinds when it comes to keeping pace or outpacing inflation with bonds alone. However, the fixed income asset class can play a vital role toward your comprehensive investment objectives. Financial and economic factors impact bonds differently than stocks, so bonds often react differently than stocks. For example, in the chart below, we show the returns of the Bloomberg U.S. Aggregate bond market vs. the 20 worst quarters for the S&P 500 since 1990. As you can see, the bond market increased in value during 16 of the 20 worst quarters for the stock market, illustrating the potential diversification benefits to holding bonds during volatile times. Many bonds, such as short-term and high credit quality bonds, tend to be more stable than stocks and provide consistent interest payments. Bonds also may provide a source of liquidity outside of your stock portfolio for specific needs such as income in retirement or major purchase like a car or vacation. While not guaranteed, including bonds in your portfolio may also provide a source of funds to help rebalance your portfolio when stocks are down. For example, the S&P 500 had negative returns in 2008, 2018, and so far in 2022 as depicted in the chart below. In all four periods, the fixed income market outperformed the stock market, thus providing a source of funds to rebalance your portfolio. This means that investors who had exposure to fixed income may have been able to sell some of their fixed income investments (while prices were higher) and purchase stocks (when prices were lower). But, like most types of investments, there are some downsides to bonds. For example, some bonds may not keep pace with inflation. Also, unlike U.S. Government bonds, some bonds aren’t guaranteed to pay back the principal (junk bonds). Finally, some individual bonds may be costly to buy or sell on their own, which is why many investors get exposure to bonds through diversified bond index funds, like mutual funds or exchange-traded funds. With these tradeoffs in mind, here are some bonds to consider. Treasury Inflation-Protected Securities (TIPS) Treasury inflation-protected securities, or TIPS, are exactly what they sound like. They are US Treasury securities whose interest payments adjust with inflation. You receive a fixed interest rate set by a competitive auction when each issue is offered. But that rate is based on the principal amount, which is adjusted for inflation every six months. You can buy TIPS from the Treasury at treasurydirect.com or through a registered broker. Since the US Treasury market is large and active, many Treasury bonds, including TIPS, are available in the secondary market. You can also purchase them at issue by placing a bid in one of the regular auctions. Most individual investors will place non-competitive bids, meaning they will take the rate determined by the auction. You are limited to $5 million of non-competitive bidding. An easier way to purchase TIPS may be to purchase a diversified mutual fund or exchange-traded fund (ETF) that is specifically designed to invest in TIPS on your behalf. In addition to inflation protection, TIPS also provide tax benefits if you are taxed by your state or municipality because the interest and principal growth (if you bought them at a discount) are exempt. They are still subject to federal income taxation. I-Bonds You’ve probably heard about I-bonds recently—they are having a moment. They're all over the news, and for good reason. The current I-bond rate is an annualized 9.62% as of this writing! Like TIPS, they are a tool to protect you from inflation . They function differently from TIPS, however. They have a fluctuating interest rate that is composed of two parts: A fixed component that remains the same for the life of the bond. A variable component that adjusts every six months for inflation. Like TIPS, they are exempt from state and local taxation. Each individual is limited to a total of $15,000 worth ($10,000 online and $5,000 in paper bonds using your tax refund) of purchases each year. You must wait at least one year after buying before you can sell an I-bond, and if you sell within five years, you’ll forfeit 3 months' worth of interest. Since I Bonds are inflation-protected, you’ll likely see them boasting a higher interest rate than other types of bond investments. Municipal Bonds Municipal Bonds, or “Munis,” issued by state and local government entities (such as school districts) are a classic staple for high-net-worth investors. They have earned their place in most portfolios because they are usually tax-free at the Federal level and often at the state and local levels. To get the state and local tax exemption, you need to purchase bonds from an issuer in the same state you live in. But just because you have a high income doesn’t mean that municipal bonds are right for you. For example, we often find that some high-income investors may be better off purchasing corporate or government bonds within their tax-deferred accounts rather than purchasing municipal bonds within their taxable brokerage accounts. Like anything, the right municipal bond strategy depends on your unique situation. Corporate Bonds Corporate bonds are issued by for-profit companies. Because a governmental taxing authority doesn’t back them, they are often riskier, and their yields tend to be higher than comparable Treasury and municipal bonds. Issuers of corporate bonds have credit ratings similar to your credit score that can help you sort through them by risk profile. Building A Bond Strategy Now that you understand a little more about the different types of bonds and how they can help you, it’s time to think about how to incorporate them into your strategy. Fixed income and bond returns can differ depending upon the types of bonds that you include in your investment portfolio and the timing of your investment. That's a great reason to think about diversifying your bond portfolio across different segments of the bond market. While diversification does not guarantee against loss, history has shown that spreading out your investments may provide a benefit over the long-term. A great, low-cost way to buy bonds for your portfolio is via bond funds, either mutual funds or ETFs. They make it easier for you to diversify your bond portfolio and reduce the complexities of buying and selling bonds on your own. Plus, they tend to pay more frequent dividends than individual bonds alone. You can find a bond fund for just about any type of bond exposure you want. Some examples of different types of diversified bond funds that we utilize at Covenant Wealth Advisors are: Fidelity Short-Term Bond Index (FNSOX) DFA Five-Year Global Fixed-Income Portfolio (DFGBX) iShares S&P Short-Term National Muni Bond ETF (SUB) But, bond funds aren’t the only investment option for high-net-worth investors. You may also consider building out bond ladders. A bond ladder is a strategy whereby you purchase individual bonds with different maturities, volatility, and credit quality, like a high-yield bond. Keep in mind that higher-yield bonds tend to be riskier investments. As a bond matures, you can reinvest the proceeds in a new bond with a different interest rate. The downside of bond ladders may include a reduction in diversification (vs owning bond funds), potentially higher costs of acquiring the bonds, the work involved in maintaining the bond ladder in the first place, and a lack of liquidity for certain bonds. Bonds May Provide Benefits to Your Retirement Portfolio To re-cap, owning bonds isn’t just about their level of return which sometimes seems small. They are a tool and can bring additional benefits that are paramount to your retirement portfolio. Depending on the types of bonds you hold and the percentage they make up of your total asset allocation, they may provide stability to counter the fluctuations in your stocks, serve as an income source in retirement , are sometimes tax-free, and may provide liquidity for big purchases in retirement. So, are bonds a good investment? Ultimately, stock markets don’t always go up, and high-net-worth investors like yourself should consider the potential benefits of including bonds in your retirement portfolio. If you’d like to review your bonds to make sure they are serving as they should in your larger investment strategy or would like to talk about how bonds could help you, we will review your portfolio with you . Find some time on our calendar today ! About Mark Fonville, CFP® Mark is a fee-only financial advisor at Covenant Wealth Advisors. He specializes in retirement income planning, investing, and tax planning for people aged 50 plus who want to enjoy retirement without the stress of money. Forbes nominated Mark as a Best-In-State Wealth Advisor* and he has been featured in the New York Times, Barron's, Forbes, and Kiplinger Magazine. Schedule a call. Disclosures: Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place.