Are You Prepared To Play the
Second Half of the Retirement Game?
Retirement planning can be compared to a football game.
The overwhelming majority of financial advisors and their clients concentrate only on the first half of the game; that is, the accumulation phase during which contributions are made (while working) to retirement plans such as IRAs and 401(k)s.
The second half of the game, which is often ignored by financial advisors and their clients, is the distribution phase, where money is taken out of these plans. All retirement plan distributions are governed by complex IRS-mandated rules. Failure of the financial advisor and client to follow these rules can result in irreversible financial mistakes in the form of unnecessary taxes and penalties that can effectively devastate a lifetime of retirement savings.
Most investors and their advisors focus solely on the first half of the game. At halftime, thinking they have already won the game (since they have accumulated what is needed for retirement), they run into the locker room and congratulate each other on a job well done.
| Accumulation Phase (Savings) |
Distribution Phase (Retirement, Inheritance, Job Change) |
Contributions to 401(k) or IRA through employee payroll deductions or employer match |
Federal and state taxes, potential IRS penalties, complex distribution rules |
But it’s the score at the end of the game that matters.
The reality is that the IRS’ offense comes out to play against you in the second half (the distribution phase.) If your financial advisor is not knowledgeable of the distribution rules, then you have no defense. As a result, the IRS can take most of your retirement assets in unnecessary taxes and penalties. They win. You lose.