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3 March Madness lessons about retirement income

Many Floridians were glued to their televisions this year to watch the NCAA men's basketball tournament. The participation of three schools from Florida, and especially the surprising success of Florida Gulfcoast University kept interest high. Now that it's over, though, residents in West Palm Beach and around the state can take away a few important life lessons from the tournament, such as strategies to help their retirement income.

First, one mistake can ruin everything. In filling out a tournament bracket, some mistakes will hurt more than others. The same is true in planning for retirement. While incorrectly picking one first round game may not destroy an entire bracket, it could, if the incorrectly picked team was picked as the eventual champion. Similarly, forgetting an IRA contribution one year may not destroy retirement income, but committing a prohibited transaction with an IRA could have profound effects on the plan. To avoid mistakes, one should always be sure to have accurate, up-to-date information about any transaction or investment, and determine the effect it might have on the entire estate plan.

Second, an estate plan encompassing retirement income should expect the unexpected. Just like FGCU going to the sweet 16, where no other 15th seed had gone before, unexpected events will happen in one's lifetime. A spouse with a pension who dies prematurely, or a serious illness that causes high medical bills are just two of the events that could thwart an estate plan's goals. A buffer is a good idea in all financial planning, as is transferring risk to third parties, such as with a life-insurance policy. However, such actions are not the best course for every situation, so individuals should get good information so they can evaluate their best options to avoid surprises.

Lastly, one should always pay attention to the brackets. The tournament brackets are set by the NCAA, just as tax brackets are set by the federal and state governments. Many people underestimate the effect taxes can have on their estate plans and retirement income. A good estate plan will take these issues into account, and plan to minimize the amount paid in tax. Taxes can be deferred in some instances, and avoided in others. As always, the proper information and advice is crucial to good decision-making in this area.

So, by making sure to obtain accurate information and good advice regarding different aspects of an estate plan, people can avoid mistakes, plan for the unexpected, and mitigate taxation losses when it comes to retirement income. That's what it takes if you want to retire as a financial champion.

Source: Market Watch, "NCAA brackets reveal 3 retirement lessons," By Jeffrey Levine, 04/08/2013

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