Efficient Retirement Planning

Retirement planning can be as simple or as complex as desired. Setting up 401k withholding, or hiring a financial planner to optimize savings are easy ways to simplify your retirement strategy. Simple and effective are attainable for everyone. There are two other goals everyone should strive for in their retirement planning, inexpensive and efficient.

1. The Efficient 401k - 401ks are inherently efficient because they are tax advantaged savings vehicles. Depending on whether you invest in pre-tax (traditional) or Roth, the tax benefits will vary by person or family, but are great ways to save. If your employer offers 401k matching, you may have access to "free-money" to boost your retirement savings even further.

2. Fees - All investment vehicles come with associated fees. Financial advisors will generally cost you more than investing independently. When selecting funds, stocks, or platforms to utilize for your investments, understanding exactly how the providers earn money from your money is critical to efficient investing. Look for vehicles with low expense ratios, tax advantages, and other benefits. What is easiest or simplest, isn't always best. What offers the best returns may also come with the highest fees or tax consequences.

3. Advanced Tax Efficiency - Once your 401k is fully funded and allocated into investments with low expense ratios that reflect your risk tolerance, it's time to look at additional tax advantaged mechanisms. Backdoor Roth IRAs may be a good option to save an additional $5,500 per year for an individual, while also being tax advantaged on withdraw in retirement. Health Savings Accounts are potentially triple tax advantaged and are widely considered to be the most tax efficient savings vehicle available for the right investor.

4. Location, Location, Location - Location should be a critical piece of the retirement puzzle. Where you earn your income in your prime earring years, versus the tax reality of where you plan to retire can drive significant tax efficiencies. For example, if you earn in Washington State, where there is no income tax, consider contributing to a Roth IRA. Generally, you should consider retiring some place with no income tax and/or low property tax. Unless your retirement savings is in Roth accounts, consider retiring in states with no state income tax, this will allow your retirement dollars to go further. Consider retiring in a state with low property tax rates, or that cap annual property tax increases. States with property tax that increase directly with property value assessments on an annual basis often creates insurmountable tax burdens, which drive retirees from their homes.