When planning for retirement, there are a number of options available to you. You’re likely taking advantage of several of those retirement options, from employer-driven pre- and after-tax contribution programs to corporate benefit plans and personal savings.

While contributing to some of retirement plans, like your 401(k), is an easy, set-it-and-forget-it measure, that approach may not be optimal. You could be leaving additional money on the table if you don’t plan proactively.

In this webinar, the Willis Johnson team will highlight four guidelines to ensure you’re making knowledgeable, proactive decisions about your financial future, including garnering maximum efficiency from your employee investment benefits. From the presentation, you’ll learn:


What Your Retirement Budget Will Look Like

Before you can make decisions on your retirement saving and spending strategies, it’s important to determine the type of lifestyle you’d like to maintain in retirement. While some sources of conventional wisdom cite spending 60 percent of your previous salary annually once you’ve retired, that number is a bit vague and may not apply to everyone’s circumstances.

          •  You may spend less because you choose to downsize your home, or because you’ve finished putting children through college.
          •  Other expenses may arise, or your vision of retirement may be substantially more costly than you expected, because of costs associated with caring for aging parents, purchasing additional real estate or traveling.

What to Know About Working Post-Retirement

While the addition of new expenses in retirement may not be especially heartening, one positive about retirement cash flow is the possibility for new career ventures. More than half of all current workers intend to work at least part time after their first retirement.

That work, whether another full-time job or a part-time consultancy, can bring new motivation and excitement into your retirement. And, even more importantly, it can allow you to infuse your retirement nest egg with additional funds and stretch its lifespan.


How to Maximize Your Employers’ Investment Offerings and Incentive Plans

Once you’ve submitted your personal pre-tax contributions and your employer has provided theirs, you may think your work is complete. However, although you may have maxed out your pre-tax savings options, you still have other avenues available to you.

The webinar highlights additional ways to capitalize on savings options, including non-qualified plans, IRA rollovers and after-tax contributions. And, it discusses the IRS tax code and how you may be able to use its guidelines to maximize the effectiveness of your savings.


How to Structure Your Future Disbursements For Maximum Tax Efficiency

Once you reach retirement age, many different sources of income typically become available to you, including:

           • Stock awards
           • Unused benefits (such as paid time off that has accrued over the course of your career)
           • Social Security disbursements
           • 401(k)/IRA/pension disbursements
           • Severance payments

It’s not uncommon for income in the first year of retirement to exceed the income generated the previous year, because of the confluence of these diverse income streams. Many people take those rewards in one fell swoop, then live from them for the next several years, which can have a negative impact on their tax burden.

Where tax efficiency is concerned, looking at your financial inflows in a more strategic manner can allow you to potentially reduce your tax rate and maximize your benefits. The webinar discusses how you can structure the disbursement of your income streams to lighten your tax load and spread the initiation of various income streams over multiple years.


How To Consistently Take Advantage Of Every Investment Opportunity Available To You

At each stage in the arc of life, there are financial opportunities you don’t want to miss and ones you should address to make the most of your savings efforts.

Carefully weighing your options and preparing for contingencies is an important part of your financial strategy. A seasoned and knowledgeable advisor’s years of experience can be beneficial in making these best-laid plans, because this expert has worked with other clients in similar situations.

An advisor has seen the scenarios that can arise and has provided actionable recommendations to help clients move from hoping the numbers look “pretty good” to feeling confident and prepared for retirement, a second career, or whatever the future may hold.

Watch this webinar to learn more about how you can maximize your efficiency in preparing for retirement. And, if you’re ready to connect with an advisor, we’re ready to talk about strategies that make sense and help you gain the most from your employee investment benefits.

Webinar Transcript


Well hello everybody this is Willis Johnson with Willis Johnson and Associates and today we will have a quick webinar on retirement and tax planning. As your speaker today I’ve been in this business for 35 years I’ve been president for a little over 22 years when I started it and we specialize in really helping individuals prepare for retirement.

I think the best thing to look at when we look at Willis Johnson and Associates as a wealth management firm is we specialize with corporate executives and helping them make sure that they’re preparing their financial plans for their individual customers needs. There’s times with all of our clients that work for large companies that there are certain opportunities they need to take advantage of and we talk about those being the transitions in their corporate life; you lead different stages and want to make sure you’re not leaving behind some opportunities you’re not taking advantage of. With the employee benefits and financial planning wisdom that we have and experience, we try to put those together along with understanding what your emotional needs are or your goals are for your family to make sure you’re maximizing all your resources: your income, your net worth and quite frankly the company benefits that you have.

The thing we want to emphasize is that just different stages of your life that you want to look at, different things that people look at the point of what age they are and how they’re really accumulation phase which is 40s and 50s and then the distribution phase which is 60s and 70s and when we’re trying to understand is how we’re going to accumulate money than how we’re going to distribute it in the most tax-efficient manner. Today, two of the topics we are going to discuss are retirement planning and tax planning but it’s really about making sure all of these five areas — investment planning, estate planning, liability planning, tax planning education planning and retirement planning — work together, but today’s webinar is really going to concentrate on retirement planning and tax planning.


Retirement Planning Slide

So as I said we’re going to take advantage of your opportunities but let me give you a couple of glimpses of things that you might be thinking about: People in their 40s start running cash flow projections and over the years I’ve seen people come in with all kinds of Excel spreadsheets and Quicken programs and quite frankly the calculations on the back of a napkin to tell them how much they need to retire on. These are things that people do over and over, preparing their cash flow projections, and some more complicated and some have very simple aspects to them.

But I think what we want to bring to the table is to make sure that you’re getting a second opinion; you’re looking at all the pieces that are really important because in this phase between 40s and 50s you’re accumulating, and you want to accumulate in the proper places because you’re going to start a distribution plan when you are in your 60s and 70s.


Cash Flow

Where we start we talked about retirement planning is understanding your cash flow — and your cash flow needs. I’ve worked with so many individuals over the years and the thing we want to see here is understanding what you are currently living on. We want to talk about retirement planning but the question is what is your living budget today? What are you going to be doing for education cost for your kids or grandkids? Will you support your parents or will you inherit from your parents? Do you plan on buying a second home? Do you plan on having wedding cost or remodeling your home to get it just the way you want it in retirement? In the old days we used to talk about people downsizing their houses in retirement are spending less, but let me tell you the reality of 35 years of working with people — people do not want to spend less in retirement, they don’t want to reduce their lifestyle, they want to keep the same lifestyle, retire be able to do all the things they want to do, which is; do they want to help the kids and then the other side what happens if you leave your job and you set up your own consulting practice? Will you take advantage of the tax planning opportunity setting up your own business? If you’re like many individuals who are professionals with a large company, the day you retire doesn’t mean your skills are no longer available but they’re marketable in a different format, they are now marketable to other smaller companies to other people that need your expertise and may not have been able to get you when you were in your young 20s and 30s or couldn’t afford the tab, or those who could use you for small bursts of support in different arenas, and when you set up those kind of consulting practices — on projects usually — you want to make sure you take advantage of the tax planning ideas to go with them and the tax structures that make sure that we really maximize all the things you can do from that side, that your company’s been doing for you all these years.

Another piece to discuss is family situations will you be able to or will you need to assist family members and travel budgets. Big piece: Patsy and I have three children; we always travel in the summer with all five of us, but the number has changed; it’s no longer five now we have spouses for each of the children, that makes us eight and then we have a grandchild that makes it nine, so the issues when you will be traveling is who will you be traveling with and what types of trips? Will you have a big trip every other year or will you have small trips? Will you rent a house and have all the kids join you there or are you going to pick up the tab for different things? Or are you going to be like so many clients and take the whole crew and the grandkids are the right age to Disney World? Those are things you want to be planning on when you set up your retirement plan because your retirement plan is really to make sure you have the life and retirement that you really spend your whole life working toward.


Savings Options

Now the issue is how we take advantage of this is making sure we save properly and we save in those areas where we can get the most bang for our buck. You have education savings and corporate planning benefits — or corporate benefits — here and there’s three or four different ways to save here we’re going to really address this a great deal today in this presentation. And then personal savings and excess compensation plans. Most large corporations — virtually every corporation we deal with here in Houston, Texas — has some type of executive compensation plan for its highly paid employees.


After-Tax Contributions

I like to deal with the very basics. The very basic place to start is your 401(k), and as some of you may know guys in the industry like myself love to remind or let you know that 401(k) where did we come up with such a term? 401(K) is section code in the IRS code book, so in our tax system basically a section code in the profit sharing plans and right there’s were 401(k) comes in. So let’s see what the limitations are in 401(k) and let it will tell us what we can do and cannot do. First of all, there are limitations on how much can go into a 401(k). It’s $56,000 if you’re under 50 and it is $62,000 if you’re over 50. An employee, though —an individual — can only contribute so much to a 401(k) pre-tax or Roth→ $19,000 if they are under 50 and $25,000 if they’re over 50. Most Houston companies who deal with large US companies you can both contribute pre-tax or after-tax which is a Roth and this includes most of the international companies that we deal with, that are here based in Houston. The employer then can maximize a contribution or match it to some level depending on the individual company that we’re dealing with. And what’s left over — if there’s any left over — there’s things we can do here and I’m going to give you some examples in just a minute.



So this example let’s take our 50-year-old; the limit is a $56,000 pre-tax contribution (which you get a deduction on). Usually what we recommend is $19,000 for employee contributions. The employer decides to put in up to $28,000, which in a minute you’ll find out relates to the maximum dollar amount that can be contributed to 401(k)s, and that leaves a non-Roth after-tax option of $9,000.

In this case, the employee can contribute both the $19,000 and the $9,000. It’s important understand how these affect you going forward and what’s the best use. We like to suggest to set up a plan on making sure we have various pockets of money we will be withdrawing funds from, and one of the ways to do it is understanding the two aspects of pre-tax and after-tax, but I want to match up what you would find on a corporate plan versus an individual plan:

On a corporate 401(k) plan you get a pre-tax account, so you get a deduction. Additionally, you may get an after-tax account to contribute to, which is the excess amount or, in this case, $9,000 that an employee can put into his plan.

On an individual plan, you can have an IRA (that you get a deduction for), except most people that we deal with cannot take a tax deduction because their income exceeds the legal amount. A Roth account lets the money grows tax-free — it goes in tax-free and comes out tax-free. They can contribute directly to Roths but they can do all types of after-tax savings which means they open up a brokerage account and they invest in various securities or they open up an account and just buy CDs.

What I want to mention here is there are ways for individuals to contribute to a Roth IRA, something called a backdoor Roth, which we have a number of papers on if you’re interested in hearing more about this go to our website and type in “backdoor Roth” and we will have a paper for you to examine. So on the after-tax piece here, going back to the corporate plan $9,000 is contributed after-tax and over time it is accumulated in $19,000. Let’s understand the tax ramifications. What we have is a contribution of $19,000 and appreciation of $10,000; the $9,000 will always be returned to you tax-free. The $10,000 will be taxable, however, there would have been another alternative that you could do at virtually any age — there’s no limitation age — and what we would prefer to do is fix this going forward along with future contributions. Let’s take the taxable amount and do an in-service rollover to an IRA rollover, this is a non-taxable event and take the $9,000 and contributed to a Roth; by doing this we have managed to move the $9,000 into a tax-free environment that it can accumulate tax-free, and be withdrawn tax-free and in the IRA has added $10,000 to it, but in addition to this, the Roth IRA is not required to take a withdrawal at 70 and a half. That’s a very big piece, so let me say it again: at 70 and a half, Roth IRAs are not required to take distributions. The pre-tax 401(k) plan is the Roth 401(k) plan and the after-tax 401(k) and an individual personal IRA rollover are required to take distributions at 70, but not a Roth IRA.



Now let’s go into another subject I think is very, very important and this is the non-qualified plan. Remember the 401(k) section code and this applies to pension plans and unqualified. There’s also section code 415 these are the limitation that all plans are studied or based on — on a 401(k) once your income exceeds $280,000, anything above $280,000 cannot be used to calculate the 401(k) contribution. So all all distributions or all accumulations or all deposits that you make as an individual and that the company make are based on the first $280,000.

On a pension plan the number that is used to calculate your pension, your pension contributions, your projected lump sum from your pension is based on a maximum income of up to $225,000.

If your income exceeds either of these two areas then those funds are usually put into a non-qualified plan. We then we have a piece that talks about how we distribute from these non-qualified plans — so we have 401(k) to tell us how much we can put into retirement plans, then we have 415 to tell us what the limitations are, and now we have 409 to tell us how we can take the money back out. And this is the important piece because we want to know which pocket or resource we will use first when we can start to take withdrawals. You see when you begin to take withdrawals we have various options: you have your pension money, your Social Security money, you have your 40(k) money, your IRA money, IRA rollover money, you have after-tax accounts where you save money, and CDs or money markets, or accounts where you bought stock or stock options, or 401(k) non-profit plans, and this list goes on and on, it’s just that I don’t have enough room on this slide to put everything I’d like.

What proper financial planning should do for you today is determine which of these pockets we will put funds in and at what stage we take them out in order to give us the best return on an after-tax basis. So I’m going to say is a couple of times: the best way to get your personal returns up is to minimize your taxes. That’s a direct effect on your portfolio →  determining how those funds are distributed in from which pocket first, is extremely important.


Retirement Scenario 1

Quite often we run two people come in and say I’m going to retire in 2019; I’ve hit that dollar amount, I’ve got enough money, I got all these plans and hobbies, and I want out and the first thing you see right above 2019 they retire: they start their pension and all the sudden they say oh my goodness I get all these benefits, all my vacation pay is being paid out to me, and I got my stock award or stock plans, and there is my non-qualified pension and I have something called net unrealized appreciation (if you are so lucky to work for one of those companies that allow you to buy the stocks inside of your 401(k) and it’s gone way up in value this is a great planning opportunity), and then at the bottom of the page you see non-qualified 401(k) and maybe they gave you a severance to encourage you to leave because they need to open up some spots. If you look at this it is not uncommon for someone to double, or triple, or even quadruple their income in their last year because all these benefits that have accumulated over 10 or 20 or 30 plus years, are getting paid out all at one time. And that’s not our first choice because what happens in the next year is that we have no income 2020, no income 2021, or 2022 and you’re just spending this excess cash.

We feel that these are opportunities that you’ve left behind. Just as there’s opportunities in your 40s and 50s to accumulate properly, there’s opportunities when you retire to take the distribution in the most tax-effective manner.


Retirement Scenario 2

One of the things is something you might do is say retire at the end of 2019. Start your pensions and other benefits in 2020, and 2021 maybe we’ll do a Roth conversion (we will take IRA money and convert it to a Roth) or take some of that net unrealized appreciation stock in the company that you own that’s in your 401(k) and take advantage of some really great tax planning ideas in these years.

But the bottom line on it is, it is too late to plan this the day you retire. These decisions should be made years in advance 1) deciding which pocket we’re going to take the funds from first 2) which pockets will provide different benefits at what time and stage in your life, because the IRS has certain limitations on when the money comes out — remember we have different section codes — we’re going to accumulate with a 401(k) and we are going to limit it by 415, and we’re going to distribute it by 409. So we want to make sure we’re taking advantage of those codes to get you the best long-term planning ideally an after-tax effect.


Putting Them Together

So our job is putting them all together in your 40s we’re accumulating, 50s we are accumulating, 60s and 70s you should be living off of these assets you built up. Today we discussed retirement planning and tax planning but at each stage of life there’s certain things you don’t want to skip — certain things you don’t want to miss and we want to make sure we put a plan together that is in place for you — or you may need to make sure your plans put together and it’s understood by you and your spouse together.


How Many Times Will You Retire

I’ve said this for many years you retire once or twice in your career. You work a long time for a company and you retire, and then maybe you consult and then retire second time.

Here at Willis Johnson and Associates, we have helped retire hundreds if not thousands of people (for many many years I wish we would have tracked the number because I’m sure the number would be astonishing to all of us) and the fact is we’ve seen so many different things and our job is to really have a true understanding of your benefit book, your benefit plan, and to make sure you’re not letting opportunities slip through your fingers because you’re not taking advantage of them.


Free Consult

The way we do this is really first giving you the thing you probably need more than anything else: a second opinion. Have someone else review what you’ve already been doing if you take this opportunity to come in for a complimentary initial consultation. We ask you to prepare and have on the day we asked you to come in and have your passcode so we can get get online and see what your benefits are the point is we want to see what you’ve been doing and how you’re set up. If you come in and everything is in great shape and looks fantastic in a second opinion says man you don’t really need it do anything differently it’s going to work. But most likely most cases when an individual walks in we say this will work but you’re not optimizing it the way we want to… let me give you two or three ideas it will help you optimize your plan and make it just a little bit better because there’s nothing wrong with having a retirement plan that adds cushion and a little bit more flexibility to it — because as we know things sometimes don’t always work out the way we’d like. We want to have a plan that has some cushions in there and understands that if something goes wrong or you stumble little bit coming out of blocks because the markets don’t work out, or expenses are a little bit higher than you expect, that you will have the cushion throughout your entire retirement to live the life that you deserve.

What we do it is if someone decides to hire us we will put together a flat fee-based plan. We’re going to say our fee to prepare your plan is this — client pays half on the front end and half on the back end. This allows us to put together a very comprehensive financial plan to let you know what best fits your situation where you’re going; it’s a customized plan was one of our wealth managers here in the firm.

Some clients ask us to also assist them with the asset management managing the assets because different accounts should be managed differently, in that what I’m saying different buckets in your funds:

          • Some assets should be identified that you will take out in the first two to three or five years retirement.
          • Some should be identified that you will be using for 10 years and should be more aggressive or be more concerned with inflation
          • Some might be addressing certain needs like education cost

So what I recommend is you sit down gather your data but take advantage of that complimentary initial consultation. We have a chance to kind of see what you’re doing and then if you want to put together an overall plan that really sets the roadmap for you for your future, we would like to help you put that together and then we can help you maintain that to the asset management aspects of our firm.

Here at Willis Johnson and Associates we are fiduciary — we are registered with the SEC — and what that means we need to be doing the thing that’s best for you. We don’t sell any products; what we are concerned about is our clients and developing the plan and the custom plan is the roadmap to give them where they want to go, and we’ll be around to also make the adjustments as things change in your own plan.

I look forward to meeting you when you come in the office. Again, this is Willis Johnson. I look forward to seeing you here soon. Thank you.

Willis Johnson & Associates is a registered investment advisor. Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed herein. Insurance products and services are offered or sold through individually licensed and appointed agents in various jurisdictions.