Retirement Planning: Working with a Total Return Approach

Are your retirement assets arranged in a way that will allow you to live the lifestyle you desire? David Cyrs, of Cyrs Wealth Advisors, explains one technique to keep your assets working for you.


In 1978, I was beginning my first entrepreneurial activity (post-paper route business education), launching Nu-Bright Painters to support my college education. It also was when Congress passed the Revenue Act of 1978, adding Internal Revenue Code Section 401(k), which allowed people to avoid being taxed on deferred compensation.

Consequently, beginning in January 1981, the IRS issued rules that allowed employees to contribute to their 401(k) through salary deductions. By 1983, nearly half of all large firms either offered or considered offering a 401(k) plan.
In 2001, the Economic Growth and Tax Relief Act increased the amount individuals and companies could contribute and allowed those over age 50 to make “catch-up” contributions.

This act coincided with the rise of individual retirement asset strategies and the fall of the proverbial “company pension plan.” As many of today’s professional journals estimate, only about 13% of all private-sector employees have a traditional pension.

Today, the most common questions I field include, “What strategies should I use in managing this asset?” Certainly, among the most essential elements I emphasize is a total return approach. Some people feel that retirement income strategies should include increasing dividend-paying equities, overweighting bonds or increasing high yield. But these will only likely increase a portfolio’s risk. It will most likely result in higher-concentrated risk in certain sectors and a higher probability of failing to obtain long-term financial goals.

A total return approach considers both income and capital appreciation. Perhaps more importantly, it has these potential advantages over the income-only method:
• Less risk. It can allow improved diversification, instead of concentrating on certain securities, market segments or industry sectors.
• Better tax efficiency. It can offer more tax-efficient asset locations for situations involving both taxable retirement savings and tax-deferred IRAs.
• A potentially longer lifespan for the portfolio. To supplement this, allocating a portion of overall assets into an insured guaranteed lifetime income vehicle can also be added.

Another question I commonly hear is “What about trusts and protecting my accumulated large IRA/401(k) balances for my beneficiaries?” Or, can I use a trust for my IRA? Yes, trusts can be ideally suited for large IRA balances. A trust can help the original IRA owner maintain control over distributions to protect assets within a family, or other desired beneficiaries. It can help with unintended disinheritance. It can reduce sudden large income tax consequences, maximize continued tax deferral over generations – and perhaps most important to families – avoid “sudden wealth effect.” One can also name a trust as beneficiary of an IRA to establish control and protection over distributions taken after death.

Though times change, don’t hesitate to seek professional planning and advisory service. Though we indeed live in a self-service world in more ways than just a few, and one where private pension plans have all but disappeared, why risk managing your retirement asset strategies alone? Self-service may make sense for a cheap checkout, but not for life savings of more than $500,000 in 401(k) or IRAs.