The Defensive Retirement Planning

The best offense is a good defense, as the saying goes

, and it can also translate to the possibility that defensive retirement planning is as good as planning that puts you at the offense with aggressive investing and proactive saving strategies. On the subject of planning for your retirement, you can be on the defense by constantly identifying ways to lower your overall expenses, whether they be relatively trivial expenses such as magazine subscriptions or major expenses such as your yearly tax burden. Here are some defensive retirement planning tips:

Eliminating Debt

Any good retirement plan always involves reducing debt as much as you can, as soon as possible. When it comes to retirees who mostly depend on fixed income sources, the impact of debt is most significant as they do not have the buffer of high possible returns from high-risk investments. Although the task of eliminating debt can seem impossible at the onset, it is a financial move that you can do on your own.

Eliminating debt can be achieved with the snowball method. First, you will have to calculate the amount you can pay towards debt per month. You can use the cash to make minimum payments on what you owe, with the exception of the least expensive debt (which you will place any extra money towards after everything else has been paid). After paying off the debt that is least costly, you can then go to the second least expensive debt, and so on. The method is labeled as such because your debt payments snowball per eliminated debt, turning the process of debt elimination into a more manageable and less daunting effort.

Lowering Your Tax Burden

Although it may not be possible to avoid tax payments altogether, you can reduce the strain of your tax burden on your finances by deferring taxes or lowering them to some extent. You can go for retirement savings accounts that come with tax advantages, such as IRAs or 401Ks. If you are qualified, you can also transition to or open a Roth IRA, which requires tax payments now and results in tax-free distributions once you reach normal retirement age. If you, your tax advisor, or retirement planner finds it feasible because you will have to increase how defensive your retirement planning is, you can also live in an area that does not implement taxes on Social Security benefits or pension payouts

by: Katherine Smith

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