Oftentimes, when driving, you might give a little glance over your shoulder and start to switch lanes only to hear a horn and find someone driving in your blind spot.  You move back over and keep heading in your lane.  The question might be, “Were you able to get back over, get off on the exit you needed, and get to where you are going?”  In investing and managing your retirement, there are times “when you can’t get over” and opportunities when you can. However, there are no horns to alert you.  What might be something on the road in your retirement that you can do but you’re not seeing it when it happens? There might be a few blind spots. Here are a few and what you can do.

Taking Profits:  When stocks return more than 20% in a year, in 2023, for instance, this is an opportunity to take some profits and reduce your risk and downside potential while locking in some handsome gains.  The timing of this matters. It is likely that you don’t want to rebalance every time you have a gain. However, there is great research that supports this timely profit-taking. Take profits. Reduce risk. Lock in gains. All nice moves in one fell swoop.

Roth Conversions: I’ve written and spoken about this on our podcast, but I’ve often found people, early in their retirement years, 62 or 65 years or so, aren’t even remotely paying attention to what their required minimum distributions are going to be when they turn 73. Roth conversions can help permanently reduce what these required distributions might be.  This gives you far more control of your tax situation once you turn 73 and on – before even considering the powerful tax-free growth in the Roth IRAs.  Once your required distributions start, you effectively lose control of your taxable income, and there is no exit ramp to avoid this if you don’t make some changes sooner.

Distribution Order:  Distribution order is the order from which you might take distributions from your accounts to supplement or pay for your lifestyle in retirement.  Tax-wise you might be tempted to take from your Roth IRA or taxable accounts first and only pay tax on your capital gains. This will allow your Traditional IR

As and 401(k)s to potentially grow without withdrawal. This effectively increases your required distribution from your IRAs once you reach 73, proportional to the growth of the account. This effectively doubles your required distribution from your IRA’s once you reach 73. This is not a great tax position or plan.  Take a look at this earlier than you think.  Roth IRA’s might be the last place from which you take distribution, instead of first.  Taking some of the growth from your Traditional IRAs might benefit you later.  You can end up at a better destination with some planning on distribution order.

These are what come to mind and some easy steps you can work on with your advisor.  Drive safe folks. Watch your blind spots. Get safely to where you want to go.  Some financial destinations are prettier than others.

This article is written by Eric W. Johnston, CFP®, Financial Advisor and President of InFocus Financial Advisors Inc., whose firm focuses on the needs of people in retirement.  For questions or comments, he can be reached at 410-677-4848 or [email protected]. His website is www.retireinfocus.com. His podcast is called Retirement Insights which is found on his website and YouTube.com

Investment Advisor Representative offering securities and advisory services offered through Cetera Advisors LLC, member FINRA/SIPC, a broker-dealer, and a Registered Investment Adviser. Cetera is under separate ownership from any other named entity.

Investments in securities do not offer a fixed rate of return.  Principal, yield, and/or share price will fluctuate with changes in market conditions, and when sold or redeemed, you may receive more or less than originally invested.  No system or financial planning strategy can guarantee future results.

Disclaimer: For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisors LLC nor any of its representatives may give legal or tax advice. Re-balancing may be a taxable event. Before you take any specific action be sure to consult with your tax professional. Distributions from traditional IRAs and employer sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching age 59½, may be subject to an additional 10% IRS tax penalty. Converting from a traditional IRA to a Roth IRA is a taxable event. A Roth IRA offers tax free withdrawals on taxable contributions. To qualify for the tax-free and penalty-free withdrawal of earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59½ or due to death, disability, or a first time home purchase (up to a $10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes.